Summary
State Farm is renewing most windstorm risk west of US1 in Miami State Farm is renewing "all other perils" and dumping Wind east of US1. State Farm has many loyal but frightened (20-40 year old) agency owners whose existence is threatened if State Farm abandons Homeowners, so it is unlikely. Gov. Christ is setting Citizens (JUA) wind storm rates politically and not financially. Washington already turned down Gov. Christ to bail out JUA if we get a disaster. According to National Underwriter, Citizens sells $3 Billion in premium and has $29 billion in liabilities.
Analysis
Those who routinely place windstorm risk with Citizens (Florida's non state guarantee fund protected JUA "insurer"), know that it is under priced. Christ recently OK'd a 10% premium increase when State Farm wanted much more. When the government starts competing with private carriers, who can win? It is very bad news for anyone who believes that the big government will outperform private enterprise. According to the National Underwriter Citizens has $3 billion of premium, $29 billion of liabilities, and some reinsurance estimated at about $2 billion. If we get a category 5 storm on Miami, its anyone guess when policyholders will get paid. Hurricane Andrew did NOT hit Miami, and it was $60 billion in losses.
Politically setting rates is anything but sound, and according to Citizens financials has required large borrowing to meet claims expenses. Right now they show $58 million just in interest on that liability.
State Farm is bluffing for much of the states homeowners in my opinion. Already they are renewing most of the wind storm policies west of US1 in Miami. And east of US1 they are renewing "all other perils" and dumping the Windstorm with Citizens. There is no easy answer for State Farm. Abandoning its 20-40 year old agencies that rely on at least 50% of their profit from homeowners sales may be the impetus for those same agencies to find greener pastures, if not go out of business altogether. So like the well run company it is, State Farm is cherry picking homeowners low risk "all perils" and dumping the windstorm into Citizens. One day all the other Floridians will try and pay off the massively unfunded hit of a category 5 hurricane with floating bonds.
That will be one good neighbor who is not there for their client's windstorm risk if they wrote the policy and placed the wind with an underfunded fund. There may also be real liability for State Farm if their customers sue them breaching their fiduciary without full disclosure.
Stephen George
Provider Risk
