Farmers Insurance Exodus: Understanding The Florida Departure

Farmers Insurance is exiting the Florida market, becoming the fourth insurer to do so in the last year. The company cited risk exposure as the reason for its decision, which will affect around 100,000 policyholders. This move comes amidst a crisis in Florida's insurance market, with rising costs of covering climate change-related damage, including floods, hurricanes, and wildfires. Homeowners in Florida are already facing high insurance premiums, and the departure of Farmers Insurance will further limit their options and potentially increase rates.

Farmers Insurance's decision to leave Florida affects 100,000 policyholders

Farmers Insurance is the fourth major insurer to leave Florida, affecting around 100,000 policyholders. The company has stated that the decision was made to "effectively manage risk exposure", particularly in the face of rising costs associated with climate change and natural disasters. This includes the increasing frequency and severity of hurricanes, floods, and wildfires, which have led to higher reconstruction costs.

Florida's Office of Insurance Regulation expressed disappointment in the decision, noting that it could have cascading impacts on policyholders. Indeed, the decision has left many Floridians with limited options and even higher costs for insurance. Florida already has some of the highest insurance premiums in the nation, with residents paying an average of $6,000 per year for home insurance, a 42% increase from the previous year.

The decision by Farmers Insurance is part of a broader trend of insurers withdrawing from disaster-prone areas, including California and Louisiana. In Florida, this has exacerbated an already struggling insurance market, with lawmakers attempting to bolster the industry through various measures. However, these efforts have not prevented insurers from leaving or reduced premiums for homeowners.

Farmers Insurance's decision will only impact its Farmers-branded insurance policies, which account for about 30% of its business in Florida. Policies offered by its subsidiaries, such as Bristol West and Foremost, will not be affected. Affected policyholders will be given 120 days' notice before their coverage is discontinued and will need to find alternative insurance providers.

The impact of Farmers Insurance's departure from Florida extends beyond the 100,000 policyholders. It highlights the ongoing challenges of insuring disaster-prone areas and the vulnerability of residents in these regions. With insurance companies retreating from these markets, consumers are left with fewer options and higher costs, exacerbating the financial burden on homeowners in Florida and similar states.

The company cited risk exposure as the reason for its departure

Farmers Insurance, one of the nation's largest home insurers, has decided to leave Florida, affecting about 100,000 existing policies. This decision comes as insurance companies are increasingly dropping coverage in disaster-prone states like California, Louisiana, and Florida, where the costs of claims and reconstruction are soaring.

The company cited "risk exposure" as the primary reason for its departure, specifically mentioning the growing costs of natural disasters and construction. In a statement, Farmers Insurance spokesperson Trevor Chapman said, "This business decision was necessary to effectively manage risk exposure." Florida is a hurricane-prone state, and the costs of hurricane recovery and rebuilding have been skyrocketing. In addition, Florida residents pay some of the highest home insurance premiums in the country, with an average of $6,000 annually, compared to a national average of $1,700.

The move by Farmers Insurance is a significant blow to Florida's already struggling insurance market. It is the fourth major insurer to leave the state in the last year, following Bankers Insurance, Centauri Insurance, and Lexington Insurance. Florida lawmakers have attempted to address the insurance crisis with legislative changes, but the market remains in turmoil. The decision by Farmers Insurance to leave the state will likely result in even higher insurance rates and further strain on the state-run insurer, Citizens Property Insurance.

The impact of Farmers Insurance's departure will be felt by thousands of Floridians, who will now have to find new insurance providers. The company's decision to withdraw only affects its Farmers-branded policies and not its other insurance companies, such as Bristol West, Foremost Signature, and Farmers GroupSelect. However, with national insurers having a minimal presence in Florida, options for policyholders are limited.

The insurance industry in Florida is facing significant challenges due to the high costs of claims and litigation, as well as the increasing frequency and severity of natural disasters. With reinsurance costs also on the rise, insurers are finding it difficult to offset their monetary risks. As a result, companies like Farmers Insurance are choosing to leave the state rather than continue operating in a high-risk, high-loss market.

Florida's Chief Financial Officer, Jimmy Patronis, criticised the company for its lack of communication

Florida's Chief Financial Officer, Jimmy Patronis, criticised Farmers Insurance for its lack of communication ahead of its decision to leave the state. In a tweet, Patronis said his office had had "zero communication" with the company and that they would explore every avenue possible for holding them accountable.

Patronis also said that Farmers Insurance had become the Bud Light of the insurance industry, accusing the company of prescribing to the United Nations proclamations and edicts that they've been pushing out. He continued, saying that the company had made poor decisions at the C-suite [level] and they're making excuses to try to get out of it, [to] cover their [backsides]".

Patronis further criticised Farmers Insurance for acting like a prodigal son, and said that the company had really poorly handled the situation. He also noted that the company's communication with his office had been "atrocious".

In a statement, Patronis said:

> I’ve always said that when big decisions are made on insurance – the policyholder is rarely in the room – and unfortunately Farmers Insurance proved me right. I have asked my team to put their heads together in holding Farmers Insurance accountable to Florida policyholders. I want additional scrutiny on this company. Therefore, I have directed my Division of Consumer Services to conduct a deeper dive into Farmers Insurance complaints – and if those complaints hit a certain threshold, it will trigger market conduct investigation that could lead to fines being levied against the carrier.

Home insurance premiums in Florida have increased by 42% compared to last year

Firstly, Florida's geographic location makes it susceptible to natural catastrophes, particularly hurricanes. In 2022, Hurricane Ian caused almost $114 billion in inflation-adjusted losses, making it the third most costly hurricane in US history. The increasing frequency and severity of these natural disasters have led to higher reinsurance rates, which will be passed on to consumers.

Secondly, Florida leads the country in insurance-related litigation, taking up almost four-fifths of the nation's total. This has been attributed to a “legal system that invites litigation”, with a previous “one-way attorney fees” system allowing policyholders to sue insurers for attorney fees if they won, while shielding them from paying fees if they lost. Although this practice has been repealed, it is not retroactive, and all policies in force before 2023 will still fall under the old regulations.

Thirdly, there has been a misuse of assignment of benefits (AOBs), where contractors solicit unwarranted AOBs from homeowners, conduct unnecessary work, and file lawsuits against insurers if their claims are denied. This has resulted in a significant increase in fraudulent claims.

Other factors contributing to rising insurance premiums in Florida include rising construction costs, litigation costs, and the impact of climate change, which is leading to more frequent and severe weather events.

The increase in home insurance premiums has left many Florida homeowners feeling financially vulnerable, with some even considering leaving the state. Despite efforts by lawmakers to stabilize the market, costs are expected to continue rising, and it may take time for any legislative changes to have a significant impact on reducing premiums.

Farmers Insurance is one of several insurers to withdraw from Florida

Florida has been struggling with a property insurance crisis, with homeowners facing skyrocketing premiums and insurance companies dealing with costly legal disputes and litigation. In the midst of this crisis, Farmers Insurance is not the first company to withdraw from the state. Bankers Insurance, Centauri Insurance, and Lexington Insurance, a subsidiary of AIG, have also withdrawn from Florida's insurance market in recent years.

The decision by Farmers Insurance and other companies to leave Florida highlights the challenges faced by insurers in the state. Florida's location and low elevation make it particularly vulnerable to hurricane damage, and the state has been hit by a series of hurricanes in recent years, including Hurricane Ian, which caused over $100 billion in damages. The high cost of payouts and the increasing frequency of billion-dollar disasters have made it difficult for insurers to remain profitable in Florida.

In addition to the risks posed by natural disasters, insurers in Florida also face challenges due to the state's legal system. There has been an increase in litigation and lawsuits filed against insurance companies, with Florida leading the nation in homeowners' insurance-related litigation. This has contributed to the financial strain on insurance companies and may have played a role in their decision to leave the state.

The departure of Farmers Insurance and other insurers from Florida has left residents with limited options and even higher costs for insurance. With fewer companies operating in the state, policyholders may struggle to find affordable coverage, especially during the hurricane season. The situation has also put a strain on the state-run insurer, Citizens Property Insurance, which continues to grow as private companies leave the market.

Frequently asked questions