As we have discussed previously on this blog, State Farm Florida Insurance, the state’s largest private property insurer, wants to raise rates by a statewide average of 28 percent.
Although Florida has dodged a direct hit by hurricanes the past five years, State Farm claims that the increase is required to cover rising losses for claims unrelated to storms such as sinkholes. The increase comes after the company received approval in 2009 to raise average statewide rates by 28 percent and approval in November to raise them again by 6.6 percent.
State Farm had 678,849 residential property insurance policies in the state as of late last year, including 128,506 in Broward, Palm Beach and Miami-Dade counties and 175,084 in the Orlando area.
Some perspective based on the numbers….
Let’s say that the average homeowner’s insurance policy premium each month in Florida is $128/month.
State Farm has 678,849 residential property insurance policies.
That equals about $86,892,672.00 that State Farm collects each month in Florida from homeowners.
That is $1,042,712,064.00 that State Farm collects for the year.
Rather than pumping that money out of the country to overseas reinsurers to help them pay for opulent conferences in Monte Carlo, let’s say State Farm opted invest that money. And with that investment let’s say State Farm secures a modest average return of 10% per year (the stock market average return is 12% in the long run). This means that State Farm makes $104,271,206.40.
Keep in mind that insurance companies are required to keep reserves which they invest. These reserves are in the BILLIONS of dollars. However, forget about that now and focus solely on what State Farm receives in premiums from homeowners.
State Farm claims that they need to increase rates because of an increase in sinkhole hole claims over the past few years that are related to the recent rise in housing starts and the real estate meltdown. The recent rise in sinkhole claims is due in large part to the recent explosion in real estate development throughout Florida, and especially in South Florida. Over development has left the ground susceptible to sinkholes. Plus, while sinkholes occur in other U.S. states, Florida is more prone to sinkhole related problems because of underground limestone that dissolves under certain conditions, especially in areas that have been over developed, according to many leading geologists.
Nonetheless, let’s do some math. State Farm’s spokesman claims that sinkholes were responsible for State Farm spending $351 million over the last three years. That is $117 million for one year.
If State Farm gets a 10% return from the investment of the money it receives from homeowners insurance premiums, then they will only be short $12,728,794.00 for the year. Now, remember the BILLIONS of dollars that State Farm is required to hold in reserves and think about the money received on the investment of those reserves. $12 million is pocket change to State Farm, and they aren’t really losing anything. Especially if you consider all the money that is shipped overseas by State Farm and others.
However, if State Farm increases rates by 28%, then the average premium in Florida goes from $128/month to $163.84/month. That’s an extra $291,959,377.92 that State Farm will receive when they claim only “need” an extra $12,728,794.00.
It sure sounds, and looks, like State Farm is trying to take many hard working Floridians for granted.
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Before opening our law firm in 2006, our attorneys worked for some of the state’s, and nation’s, largest law firms, and worked representing the insurance companies for years. Our attorneys are now uniquely positioned to use that experience to assist individuals and businesses alike throughout Florida with their insurance claims. As a result, our attorneys are well versed in the impact insurance has on businesses, condominiums, and individuals alike. Our insurance litigation practice group is prepared to tackle your insurance claim.
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