State Farm to stop writing home policies

Journal Record, The (Oklahoma City), Jun 21, 2002 by Ray Carter The Journal Record

State Farm Insurance, the largest home insurer in Oklahoma, will no longer write new homeowner policies in Oklahoma, beginning this week.

However, Oklahoma is not the only market receiving that treatment. State Farm is cutting back or placing a full moratorium on new homeowner policies in 21 other states across the country.

State Farm officials said the moratorium was imposed due to rapidly rising losses. The Illinois-based company reported a net loss of $5 billion in 2001 when a series of natural disasters caused claims to increase dramatically.

In Oklahoma, the company continues to face losses, in spite of imposing major rate increases in the past year, officials said.

"We're growing at a pace we cannot continue," said Amy Valenciano, public affairs specialist for State Farm.

State Farm achieved 95 percent of the company's planned policy growth in Oklahoma for the entire year by the end of May, Valenciano said. The company's planned growth was pegged at 2 percent, but State Farm was on pace to achieve 5.9 percent growth in the Oklahoma market by year's end based on current trends.

"Our actions that we are taking to manage our growth will ensure a strong State Farm for our present and future customers," Valenciano said. "And unlike most businesses, it's not necessarily a good thing for an insurance company to have too much growth."

By limiting growth, the company will be sheltered from excessive liability, officials said.

The company's policies represented 27 percent of the homeowner insurance market in Oklahoma in 2000 (the most recent figures available), according to the state Insurance Department.

Customers who already have homeowner policies with State Farm will not be affected, officials said.

Valenciano said "a combination of greater-than-anticipated growth, rapidly increasing claim costs, and declining investment income" have hurt State Farm's financial standing in recent months and led to the moratorium on new policies.

She said the company paid out $1.29 for every $1 in premium collected in Oklahoma in 2001.

The State Board for Property and Casualty Rates approved a 15 percent rate increase for State Farm's homeowner policies last fall, and the company plans to implement another 4.3 percent increase on July 15 under the state's "flex" law. However, those increases failed to cover expenses, Valenciano said.

"Our homeowner premium rates have not kept pace with costs," she said.

Valenciano said claim costs "have dramatically increased in recent years" due to the rising price of building materials, labor, medical care and legal services. In addition, many new homes have features and appliances that are far more expensive than those in older homes covered by the company's policies, she said.

As State Farm announced the moratorium, its major competitor in the Oklahoma market -- Farmers Insurance -- plans to continue writing policies and will not rein in activity, according to a spokesman.

"My position remains unchanged. My market is open," said Jim Westerman, Oklahoma state executive director for Farmers Insurance Group. "I also face the same challenges that State Farm has in terms of rising costs, but in the last year we've filed three rate increases so we've taken a lot of rate action in the last year. And then also we're working very closely from an underwriting and a claims perspective to make sure that we've got good quality risks."

Farmers Insurance increased rates on its homeowner policies by 7 percent in July 2001, by 9.5 percent in November 2001, and by 20.5 percent last March.

The company's homeowner policies represented 23 percent of the Oklahoma market in 2000, according to the state Insurance Department.

That market share could rise significantly due to State Farm's moratorium.

"I assume I'm going to have a pretty significant influx of new business because of State Farm," Westerman said.

The third-largest home insurer in Oklahoma, Allstate Insurance, has no plans to cease or restrict activity, according to a spokesman.

"We're still in business in Oklahoma," said Allstate Spokesman Joe Gacioch. "We've got 66,000 homeowners policies there. We've got 150 exclusive Allstate agents and 62 independent agents who would be happy to give anybody a quote."

Allstate wrote policies for 9 percent of Oklahoma's homeowner market in 2000.

The company implemented a 35.2 percent rate increase on new homeowner policies effective last January.

"It's more expensive, but it's available," Gacioch said. "We haven't done any moratorium and we don't expect to."

There are about 240 companies that write homeowner policies in Oklahoma, according to the Insurance Department.

Although State Farm officials cited rising claims expenses when imposing the moratorium, Westerman noted that "catastrophe activity" in the Oklahoma market has "been very mild so far this year." He noted that the "real drivers" of losses in Oklahoma are wind, hail, fire/lightning and water losses. Because Oklahoma has experienced very few tornadoes this year, insurers are facing a lower level of homeowner claims than normal, he said.