Most of the time, I battle large corporate insurers in David vs. Goliath like battles. I find it amusing that State Farm’s attorneys are struggling in this fight, given State Farm’s enormous size and power. Today, State Farm’s lawyers, lead by the very able Mark Delegal, are lobbying Florida’s leaders on a very anti-consumer bill. This bill would allow State Farm to charge whatever rate it wants. Florida Governor Charlie Crist is reportedly prepared to veto such legislation.
At the same time, State Farm’s lawyers are fighting with the Florida Office of Insurance Regulation over the terms of its withdrawal from Florida’s property insurance market. Is State Farm using the threat of leaving to compel legislators to pass the very anti-consumer legislation? Will State Farm withdraw its plan to leave if the bill is passed?
To remind everyone, State Farm lost in an administrative hearing against the Florida Office of Insurance Regulation in which it asked approval to increase its rates . The judge made a number of findings that State Farm was not losing money in Florida and it noted State Farm’s absurd argument that it claimed to be losing money in Florida through "expenses" that the company paid to itself.
In response to the order, State Farm decided to stop providing property insurance in Florida altogether. My thoughts on this are found in a post, State Farm’s Power Play And Propaganda Ploy. In hockey terms, State Farm’s power play lead to an unexpected short handed goal by its opponent, Florida’s Insurance Commissioner, Kevin McCarty, who placed conditions on the withdrawal and did it in a very pointed manner:
"State Farm’s cited reasons in the Withdrawal Plan are both disingenuous and misleading to the Office and policyholders they seek to abandon. State Farm created its current “crisis” by failing to pursue the opportunities that were available to reduce its expenses and mitigate its decrease in premium volume. Instead, it chose to attempt to raise rates in order to reduce savings to its policyholders its mitigation discounts provided [sic.] and to seek a profit that was excessive and unreasonable in the current economic conditions while certifying that its rate filing reflected all premium savings that resulted from legislative enactments. State Farm’s actions raise serious questions regarding the fitness and trustworthiness of its officers and directors to engage in the business of insurance."
State Farm has now challenged McCarty’s findings and conditions in a Petition for an Administrative Hearing on the matter. Their Petition claims that Florida acted "arbitrarily and capriciously.” I guess State Farm can now relate to its customers in Mississippi that it mistreated during the Katrina litigation.
In the meantime, lawyer Mark Delegal, a State Farm lobbyist, is heading a group of insurance industry lobbyists who are trying to overturn the longstanding practice of Florida regulating insurance rates. There is a good reason why insurance rates are regulated by the states–federal anti-trust laws do not apply to insurance company rate making. (I wonder if Florida legislators supporting this measure have a clue about that and its implications for the types of rates consumers may have to pay.) An article by Julie Patel in the Sun-Sentinal, Florida Home Insurance Legislation Mainly Favors the Insurers, noted that insurance industry lobbyists are pressing the Florida legislators with numerous pro-insurer bills which will result in increased rates and lower consumer protections. Delegal, State Farm, and other insurance industry insiders seem to be winning this battle—they have an army of attorneys and use their own customers’ premiums to fund their fights for laws that would actually harm their customers.
Thank God the Florida people have elected a person of courage to stand up to large corporate interests and these lobbyists. The Sarasota Herald reported that Florida Governor Charlie Crist will stop these anti-consumer measures in its article, Crist Warming up the Veto Penfor Insurance Bill. Crist, a former Attorney General, is well aware that the insurance industry is exempt from criminal and civil penalties of federal anti-trust laws, specifically in return for those companies agreeing to be subject to state regulation. He was quoted:
“My hope is that some provisions that in my view are detrimental will fall away before they come to me,” he said. “I’m a free market guy first and foremost so long as the free market can protect the consumer.
“If it can’t because an industry is so powerful and so unwieldy, then there’s an appropriate role for government to assist the consumer. This one concerns me because it’s ‘Katie bar the door’ for their rates and that’s not good.”
Crist compared insurance rates to the prices at gas stations; as soon as one station raises its prices, the other inevitably follows.
“In that industry,” Crist said of property insurance, “there seems to be a swarm mentality.”
It will be interesting to see how State Farm’s lawyers try to get it out of this mess. The lawyers are very clever, bright and persuasive types. In my battles, I never underestimate them. But it sure looks like they have some tough going to get State Farm out of its fight with the State of Florida.