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No new property policies

Insurance standoff continues as State Farm announces limits

Hurricane Katrina doesn’t seem to be dissipating as quickly as some predicted, nor as quickly as some would have liked.

Citing an unfavorable climate — not wholly related to tropical storms — State Farm Insurance announced February 14 it would cease writing new residential and commercial property insurance policies in Mississippi.

Attorney General Jim Hood countered with a widely reported plea for Insurance Commissioner George Dale and Gov. Haley Barbour to step in and prohibit the insurance giant’s exit from writing new policies. His commentary raised eyebrows across the country.

“We’re looking at a robber baron in the face that is trying to make an example of Mississippi,” Hood said in a news conference February 16.

State Farm spokesman Phil Supple, reached by phone at his Illinois headquarters, bristled at the suggestion his company is a robber baron: “This is a disappointing response to what was a business decision, but it does underscore the political and legal challenge faced in Mississippi.”

Since Hurricane Katrina wiped out much of the Mississippi and Louisiana Gulf Coast in August 2005, State Farm has been at the forefront of controversial decisions, both its own and those handed down in courtrooms.

The company, as well as other insurers, claimed that much of the damage and destruction visited on their policyholders was caused by water and not wind; that, said the company, was not covered in their wind damage-based policies. State Farm and other companies argued that the storm surge was a flooding issue that should be covered by flood insurance. Most coastal residents had not purchased flood insurance from the program operated by the federal government.

In the first of hundreds of suits filed against State Farm seeking to force the company to cover hundreds of millions of dollars in damage the company claims it’s not responsible to cover, a federal judge found the insurer culpable and ordered it to pay a coastal couple for its storm-destroyed home, as well as a $2.5-million punitive fine that was subsequently reduced to $1 million.

In the wake of that loss — and facing hundreds more virtually identical suits — State Farm offered settlements to remaining litigants. Its reaction was to announce it would no longer sell property insurance in Mississippi.

“I have no comment. We have been instructed not to say anything to the media about the company’s decision,” said State Farm agent Ron Robinson of Baldwyn.

Another State Farm agent in Northeast Mississippi who asked his name not be used said corporate’s decision “hurts me very much — it won’t kill me but it certainly hurts my business.” The agent expects it to be especially hurtful when a State Farm customer moves from another state and discovers he won’t be able to continue property insurance with his former insurer in Mississippi.

But he also pointed out that all of the insurance lines offered in Mississippi only constitute 1.5% of State Farm’s annual revenues: “We’re only a small dot on their screen.”
He also stands by the company’s claim that the “rules were changed after the fact.” The agent refers to State Farm’s position that home and business owners were not paying premiums for damage by water, but Hood and at least the one federal court has decided that the company should now be liable for those damages.

Hood’s request for an executive order from Barbour, who has said he will not issue one, and possible subsequent legislation will mandate that insurance companies selling automobile insurance in Mississippi and property insurance in other states along with their auto lines must also offer property insurance in Mississippi.

A news release posted on Hood’s Web site pointed out that Florida Gov. Charlie Crist recently signed into law a similar statute that goes into effect next year. However, said Florida state insurance regulators, that move deals more with companies that cancel or decline to renew existing policies.

Mississippi Insurance Commissioner George Dale doesn’t think State Farm’s move makes the Mississippi market more attractive to other insurance companies: “We just hope other companies don’t follow suit. There is considerable uneasiness in the insurance market in Mississippi right now.”

Whether it’s a permanent decision by State Farm or whether there are other motivations for the move is a matter of conjecture.

“There are thousands of policyholders who won’t be affected at all (by State Farm refusing to write new policies),” Dale said in a telephone interview. “This is more smoke than it actually is.”

A publicity ploy? Possibly, though Supple insists the company’s new policy is in effect for “an indefinite length of time.”

“We will reassess and reconsider new offerings when the environment changes (in Mississippi),” Supple said. “It’s a decision we feel is prudent.”

Not every insurance agent in Mississippi thinks State Farm’s decision not to write new property insurance is an imprudent one, either. Hal Thomas, owner of the independent Thomas Insurance Agency in Southaven, is one of them.

“There are still hundreds of other companies financially sound and capable of writing property insurance out there,” said Thomas, who counts more than two dozen of the non-State Farm companies directly represented by his firm.
“The choices are still real broad.”

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