By Julie Patel, Sun-Sentinel
February 16, 2011
"If this thing is approved, their premium will have doubled since 2009, which is eye-popping in itself," said Steve Alexander, an actuary for the state’s Insurance Consumer Advocate’s office. If State Farm's rates are calculated to factor in the office's concerns, the statewide rate hike would be as low as 5 percent, or there could even be a decrease.
Here are the top three concerns raised Tuesday by the consumer advocate's office:
State Farm's proposed agent commissions, about $290, are much higher than the roughly $110 average nationwide. "Does it really cost that much more, especially when you're not writing any new business?" Alexander said.
The amount is higher because it's 11.5 percent of policyholders' premiums and premiums are typically higher in Florida.
State Farm Spokesman Chris Neal said 11.5 percent “is standard in the industry” and State Farm uses it nationwide. He said agents have a lot to do because Florida’s insurance laws typically change from year to year: “I’m a little upset he would challenge how hard agents work.”
Its methods of calculating discounts and premiums are inconsistent so the discounts may be lower than they should be. Alexander asked why State Farm based its discount for people who opt out of sinkhole coverage on past sinkhole losses but based its rate hike on projections of future losses, which are much higher?
Neal said the two deal with separate requests that should not be mixed. "I didn't follow it...We strongly disagree with his reasoning," Neal said, adding that he thinks regulators did too because they didn't have many questions on the issue.
State Farm may be buying too much catastrophe back up coverage. The company plans to pay its parent company to effectively buy $4 billion in catastrophe backup coverage. Alexander said it should set aside less because it charges others states a similar fee to cover the predicted damage of a major hurricane, but a hurricane is unlikely to strike all of the states in one year.
Neal said the company buys the coverage from its parent company because it’s cheaper, but would gladly buy more from the private market if it was available at the same price. “We’ve got to make sure that State Farm Florida has the resources to protect our customers’ property and to do that, the company’s financial position has to adequately reflect the risk that is inherent in providing property and casualty coverage in Florida,” he said.