Florida Insurance Network

People tend to get sort of pissed off when they get hit with big rate hikes for stuff like homeowners insurance, health care, electricity and such.

I don’t blame them. Hell, I’m pissed off. I’ve had my homeowners insurance with State Farm for going on 20 years. They just offered me the privilege of renewing my policy for an additional $1,600. That’s an increase of about 30 percent. What a deal.

But my situation is mild compared to others. I know of one family, for example, whose State Farm policy will cost almost 50 percent more in the coming year. Their premium increase – yes, just the increase – is $2,336.

And that’s on top of a 5-percent hurricane deductible. In case you aren’t familiar with how those work, it’s different from the normal deductible. They don’t subtract 5 percent of the loss as a hurricane deductible. They subtract 5 percent of the cost to replace your home. In this family’s case, that comes to $23,600.

So, State Farm wants to collect from these folks a premium of $7,230 for just one year of coverage and it won’t even begin to pay for hurricane damages, until the total loss exceeds $23,660. So, if their house is damaged by a hurricane this season, they’ll come out of pocket for almost $31,000 before they collect a dime from good old State Farm.

Now, suppose we don’t get hit this year and State Farm keeps coming back at the same rate for a few years. That’s another $21,000 out of pocket to State Farm as we await “The Big One.” How much wind-mit does $21,000 buy? Enough to significantly reduce the cost of hurricane damage in all but the very worst-case scenario? I’m just asking.

Listen, State Farm is a good company when it comes to paying claims but at some point you’ve got to ask yourself just how much that’s worth. And a lot of people are.  Personally, I have a problem when my insurance company whacks me across the back of my bank account this way and dumps all my discounts for hardening my house to hurricanes.

I say people should get a discount for mitigating the risk of catastrophic wind damage to their homes. State Farm disagrees. They say pay more, more and more.

Normally, the best response would be to go to another good insurance company. It’s called competition. If you live in Pasco County, however, other companies won’t write a new homeowners policy these days because of sinkholes (sinkhole fraud to be more accurate but that’s a whole other subject).

So, we’re left with Citizens Insurance as the only option. Citizens  is the state’s insurance company. People with good insurance, like State Farm, often aren’t inclined to switch to Citizens because they realize that it can’t cover its liabilities. I mean it can but it’s not capitalized to cover them. It might have to use state taxing and borrowing authority to cover them, if we had a really nasty hurricane season.

Florida law also forbids a policyholder from dropping his policy with a private company in favor of Citizens, unless he compares apples to apples and comes up with a difference in premium of at least 15 percent or more. But that’s not much of an obstacle for those of us with State Farm policies because State Farm no longer gives discounts for wind mitigation. Citizens does and the difference can add up in a hurry.

With wind-mitigation credits from Citizens, the family I mentioned above might cut its annual homeowners insurance premium from $7,230 to $3,183.

I’m not going to sit here and suggest to anyone that they ought to drop State Farm for Citizens. Every situation is different. But I will suggest the following. If the replacement cost of your home is less than $500,000, call me or your insurance agent and say you want to hire a wind-mitigation inspection of your home.  It costs about $85. With that data you can get a quote from Citizens that includes wind-mitigation credits. It might add up to big savings.

At that point it’s up to you. Do you want to stick with the State Farm, pay the higher premium and sleep well knowing that you’re with a solid company when it comes to paying claims, or do you cut your costs and go with Citizens? I suspect it’s a question that many of us will be asking ourselves.

Like a noxious neighbor, State Farm is expected to dump hundreds of thousands of Florida homeowners on the state’s bedeviled property-insurance market during the next two years.

State Farm insures a huge percentage of Florida homes. State of Florida worries that other companies won’t pick up enough slack, forcing state-run Citizens Property Insurance (the so-called insurer of last resort) to accept too much risk exposure.

The roof caves in, of course, if a major hurricane hits us. That’s when Florida might have to levy billions of dollars from millions of Floridians to cover claims that no one else can pay, including Citizens Insurance. Expert bean counters fear a bad hurricane season might even produce a fiscal disaster of historic magnitude.

Naturally, Florida wants to avoid this nightmare by spreading as much risk as possible to other insurers. That’s why state law requires insurance agents to write homeowners policies for at least one property insurance company before it permits them to write homeowners policies for Citizens.

The logic behind this is sound. We don’t want agents taking homeowners business straight to Citizens and loading it up with risk exposure. We want to help other insurers get a crack at the business in order to spread as much risk as possible.

The rule makes sense and it applies to all agents, except State Farm agents.

What?

Right. It’s a good rule but it doesn’t apply to agents who represent by far the single largest property insurance company in the state, which happens to be dropping all of its property insurance in Florida. Does that sound a little strange? Wildly contrary to good public policy? Bat-shit crazy? Wait … it gets even battier.

State Farm agents are so-called captive agents. State Farm won’t allow them to write homeowners insurance policies for other companies and, of course, it’s won’t provide any new property insurance of its own. That’s a bum deal for everyone.

So what does the sovereign State of Florida do in response? It not only made an exception to allow State Farm agents to take their clients property insurance directly to Citizens, it let them offer discounts on State Farm auto insurance as a reward for doing exactly what the law is intended to prevent.

We’ve heard of bending to the winds of adversity but do we have to bend all the way over?

Ask yourself this: Why would anyone shop for property insurance from other companies, using an agent they don’t know, when their friendly, familiar State Farm agent can obtain cheap insurance through Citizens and cut their car insurance as a reward?

Answer: they wouldn’t.

Maybe this works well for someone other than State Farm and its agents but we don’t know who.