The most recent carrier to leave the Sunshine State is State Farm, with Allstate not far behind. Both insurers have said they will no longer write homeowners policies, citing steep losses. State Farm estimated that it was paying $1.21 in claims per $1 in premiums, and said it couldn’t take the $20 million monthly loss any longer. The company had asked for a 47% rate increase but was turned down.
It’s not just State Farm and Allstate, two of the biggest carriers in the US. Prudential and USAA have also said farewell to the idyllic beaches, the Keys, the Everglades, and the devastating hurricanes that plague the state.
So what now? Florida homeowners will be insured largely by a patchwork of local insurers. As a condition of State Farm pulling out, it is not allowed to dump its customers onto the state’s Citizens Property Insurance Corp, which was established in 2002 as a way to insure homeowners when they could not be insured by the private sector. As can be imagined, the agency is overburdened and is seen as the insurer of last resort.
But in the larger scheme, what does it mean for all homeowners, not just Floridians? Texans already pay some of the highest insurance premiums in the US and the coastal region of the state is similar to that of Florida’s – vulnerable to hurricanes. Since the insurance industry is regulated state by state, will insurers pull back from all coastal states, or Tornado Alley for that matter, leaving homeowners to be insured by state pools a la Citizens Property Group?
There have been calls for federal regulation of insurance companies. Interestingly enough, carriers are cautiously supportive of the concept. Agencies however, are not, with the Independent Insurance Agents & Brokers of America coming down firmly on the side of state regulation, saying it benefits the consumer.
Insurance companies have a legitimate need to make money, otherwise they won’t be able to pay claims. However, the dance that occurs between carrier, state commission, and customer is less a graceful waltz than a dancehall brawl at times. The customer often gets the worst of it, with limited coverage and higher rates.
Without insurance, the economy can’t be healthy. Insurance spreads the risk, with everyone paying some to make sure business, homeownership, commerce, is all a little bit safer. State Farm and Allstate’s decision is just business, nothing personal. But it leaves things a little more risky for the Florida homeowner – and down the road, for all the rest of us.