State Farm Wants More

Insurer says 79% hike not enough; Nationwide plans to raise rates, too

July 7, 2006
By Paige St. John and Scott Blake
Florida Today

Even as Nationwide filed Thursday for a statewide average 71 percent increase in homeowners' insurance rates, State Farm warned that a similarly large increase it had sought won't be enough.

State Farm Florida has withdrawn its pending filing for a 79 percent increase, telling regulators its costs have risen significantly since the original request was made in May.

There is no mention of when State Farm, Florida's second-largest insurer, might resubmit its request, and company representatives declined comment Thursday.

Nationwide Insurance Co. of Florida on Thursday filed for increases that would raise rates for 240,000 homeowner policyholders in Florida by an average of 71 percent, according to Nationwide spokesman Joe Case. If approved, the proposed rates would go into effect Nov. 10 for Florida's fourth-largest insurer.

Nationwide's 71 percent rate increase request gives coastal residents a comparative break, proposing the biggest increases for Floridians who once enjoyed the discount of living north or far from the water.

Locally, increases would range from 11 percent to 25 percent for Nationwide's 9,993 homeowners' policyholders in Brevard County. In Indian River County, the rate increases would range from 18 percent to 54 percent for 4,656 policyholders there, according to
Nationwide and the Florida Office of Insurance Regulation.

"This is where we need to go to make sure we are there for our customers in the long run," Case said. "We're playing catch-up. What we're trying to do is build capital."

The state has not scheduled a public hearing on Nationwide's proposed increases, which likely will be held in Tallahassee.

In September, Nationwide raised its rates by an average of 33 percent in Brevard and Indian River counties after receiving approval from state regulators. That rate filing last year raised the company's homeowners' rates statewide by an average of 21 percent, Case said.

A third, smaller insurer on Thursday filed for a 93 percent average rate increase. Michigan-based Homepointe Insurance seeks the increase by October. It covers about 22,000 policyholders. The increases include 115 percent to 119 percent for portions of Brevard, Escambia and Lee counties.

Evelyn Hawkins, a retired resident of Melbourne and Nationwide homeowners' policyholder, said if her $800-a-year annual Nationwide premium keeps growing, it could become unaffordable for her. She said she's skeptical of the regulatory process.

"I suppose another CEO needs another $20 million for his expense account," Hawkins said. "The government and the politicians should be doing more, instead of taking money from insurance companies in their pockets, so they can get elected again."

Case said Nationwide has paid more than $1 billion in claims in Florida since 2004.

Nationwide is not renewing 35,000 homeowners' policies in Florida, and it is not writing new policies in the state.

The company's annual financial report shows that Nationwide Mutual Insurance Co., the Florida subsidiary's parent company, reported profits of $612 million last year, up 15 percent from 2004.

Both State Farm and Nationwide attempt to protect themselves from hurricane losses in Florida by buying their own catastrophe coverage to protect it from huge storm claims.

It is those reinsurance costs that the companies cite to justify the bulk of the rate increases.

"While such coverage is necessary, we, unfortunately, do not have regulatory authority over what these reinsurers charge," Florida Insurance Commissioner Kevin McCarty said.

However, both State Farm and Nationwide seek to buy most of their reinsurance from their parent companies, at rates triple what they paid in 2004. If the year is without major storms, the national companies keep that as profit.

Nationwide of Florida seeks to pay $137 million to its parent company.

State Farm proposed to pay $447 million to its national parent, part of a $661 million reinsurance package it now says won't be enough.

"Because the net costs of reinsurance have changed (increased significantly), we are withdrawing this filing," State Farm actuary Robert Kelley wrote in a June 29 letter to regulators.

Both companies also seek higher profits in Florida, to offset what they say is the risk of large losses.

Embedded in Nationwide's and State Farm's filings were 15 percent underwriting profits -- larger than the state's recommended margin of 3.7 percent.

Strip out such "excessive" profit, and State Farm would have been left with a 16 percent increase, according to calculations by Stephen Alexander, an actuary working for Florida's insurance consumer advocate, Steve Burgess.

http://www.floridatoday.com/apps/pbcs.dll/article?AID=/20060707/BUSINESS/607070326