Homeowners premiums could increase as much as 85 percent in 2 years

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Homeowners premiums could increase as much as 85 percent in 2 years

By Maggie Large and Peltier staff writers

October 16, 2002

TREASURE COAST -- Anne Patan, who cares for her 97-year-old mother

Thelma Koester at the Sea Pointe Towers, is concerned about how much she'll

soon have to pay both for homeowners insurance and association fees at the

110-unit condominium on Hutchinson Island.

" I can probably manage it, but with all that's going on in the economy and

the stock market, I don't know, " said Patan, a longtime State Farm Insurance

Co. policyholder. " It's not easy for any of us on a retirement income these

days. "

Indeed, Darrell Drummond, president of the St. Lucie Council on Aging, said

a possible 85 percent increase in insurance premiums in the next two years

by State Farm -- the state's top homeowners insurance provider -- would be a

hardship for many senior citizens on the Treasure Coast and around the

state.

" Most seniors have Social Security and maybe a pension. They're restricted

with additional opportunities for further income, " Drummond said.

State insurance officials said Tuesday they are awaiting official word

before deciding what if anything to do following news that State Farm could

boost premiums by up to 85 percent during the next two years.

Last week, a three-member arbitration panel voted 2-1 to allow the state's

largest homeowners insurance company to increase rates by a statewide

average of 22.5 percent during each of the next two years. The arbitration

decision came nearly four months after Florida Insurance Commissioner Tom

Gallagher rejected State Farm's request to boost rates an average of 22.2

percent, which prompted the company to appeal for arbitration.

While the statewide average increase is 22.5 percent, coastal residents may

see rate increases as high as 85 percent over the next two years under a

panel ruling that capped rate increases at 42.5 percent a year. Coupled with

the caps, the effective average increase is 19 percent.

Many of State Farm's 1 million Florida policyholders already have seen their

bills rise because the company was allowed to boost premiums while the issue

was being arbitrated. Customers whose rate increases exceed the 42.5 percent

cap will have their bills adjusted, a company spokesman said Tuesday.

" We'll be working with the policyholders to see if they want a rebate or a

credit for their future premiums -- that's not unusual, " State Farm

spokesman Pisula said.

State Farm, which has been granted eight increases since March 1993,

requested the rate increase, saying it had experienced higher-than-expected

building costs and payouts for such hazards as mold and sinkholes.

Gallagher rejected the request, saying the company already had received a

14.3 percent statewide increase in January and another 6.4 percent last

year. Allstate, Florida's second-largest homeowners insurer, was granted a

16 percent increase that went into effect Sept. 9 -- its first rate

adjustment since 1996.

Wilbur, an independent insurance agent in Fort Pierce, said some State

Farm customers have been calling for quotes. With the pool of carriers

willing to write new policies in Florida growing smaller, Wilbur sees rate

increases as a symptom of a growing regulatory problem.

" I'm concerned about where the homeowners market will go, " Wilbur said. " I

keep seeing policy restrictions pile up. We're headed into a no-market area

like we were before, with a state-run insurance group. And, no one liked

what happened back then. "

Bob Schlitt, president of Schlitt Insurance Services in Vero Beach, said he

has been receiving calls from State Farm customers in the last six months

after the company's previous rate increase, but proportionately no more than

he gets from clients of other insurance companies when they have rate

increases.

" The issue really comes down to what is going on with the insurance industry

as a whole, not just one particular company, " he said. " And the reality is

these businesses have been keeping their rates down artificially for some

time -- either by design or by government order -- and now reality has set

in. "

Tami , a Florida Department of Insurance spokeswoman, said the

arbitration panel's ruling is a double-edged sword. Though Gallagher opposes

the rate increase, the caps would insulate coastal residents who have

experienced the most dramatic increases.

" [Gallagher's] concern all along was that State Farm had requested two

double-digit increases in one year with people being impacted by up to 160

percent, " said. " If there are caps, which State Farm refused to put

in place when we were reviewing, there is some good news in all this. "

Bill Newton, executive director of the Florida Consumer Action Network, said

he is trying to find the silver lining in the decision, saying customers are

now paying the price for State Farm undercharging customers during the 1970s

and 1980s in an effort to boost market share.

" What Gallagher needs to do is smooth out the cycle, " Newton said. " The

cycle is caused by companies like State Farm selling way too many policies

at low rates and then six or seven years later, when the stock market

tumbles, jacking up rates. "

At Sea Pointe Towers where Patan lives with her mother, Jack Cahill, a

director of the condo association, said he doesn't think State Farm has a

right to raise rates so steeply for coastal residents.

" Quite frankly, I don't think we've had any major claims out here, " Cahill

said. " In my opinion, they're trying to get rid of their backlog from

Hurricane . "

Cahill said he thought it was ironic that State Farm, his insurance carrier,

would give him credit for not filing any claims but still penalize him for

living across the street from the beach.

" I haven't got a great deal of faith in them these days, " Cahill said.

Staff writer Kauffmann contributed to this report.