State Farm has reached an agreement to continue offering homeowners’ policies in Florida, after what the state’s top insurance regulator called “a long and arduous negotiation process.”

Kevin McCarty

The Florida Office of Insurance Regulation (OIR) and its commissioner, Kevin McCarty, announced Dec. 16 a consent order with the insurer, resolving pending litigation between the two parties. In January, State Farm Florida said it was discontinuing coverage in the state, citing a “substantially weakened financial position” directly related to its inability to obtain regulatory approval for a rate increase to cover increasing liabilities.

Under the terms of the agreement, State Farm Florida will non-renew no more than 125,000 policies of its 810,416 residential property policies reported as of October 2009. Even with the reduction, State Farm will remain the largest private insurer of property insurance risk in the state.

The agreement also permits a 14.8% rate increase for all homeowners’ and condominium unit owners’ policies, based on information provided to state regulators by State Farm Florida.

“This agreement is the product of a long and arduous negotiation process,” McCarty said in a statement. “The final result is beneficial to the people of the State of Florida and beneficial to the Florida insurance marketplace.”

Insurer remains ‘viable’

McCarty added that the consent order satisfies his office’s requirements in its February conditional approval of the insurer’s then-planned withdrawal and “allows State Farm Florida to remain a viable insurer in the Florida market.”

In his own statement, State Farm Florida President Jim Thompson said the agreement will help the insurer “stabilize its financial condition by allowing the company to reduce its exposure to catastrophes and increase rates.

“This will allow us to continue to serve most of our current policyholders, and help improve State Farm Florida’s financial ability to be there when our customers need us most,” he said.

Thompson noted that policies designated for non-renewal will receive at least six months of advance notice, and agents with the company will be able to provide affected residential customers with other insurance options. New rates will go into effect as policies are renewed, he added.

“We apologize for any inconvenience or anxiety this process might cause our customers, but this is a necessary step for us as we attempt to stabilize State Farm Florida’s financial condition and serve our remaining customers,” Thompson said. “The OIR has noted publicly that 102 of the 210 private property insurers operating in the state are losing money; and three have gone out of business in the last year. To that end, it is essential for the state to continue working to develop constructive and sustainable insurance reforms that better serve the long-term interests of all Floridians.”

The dispute between State Farm Florida and state regulators dates back to 2008, when the insurer was denied a rate request of 67.1%, a decision upheld by a state appeals court.