State Farm temporarily cuts new homeowners policies

Staff and wire reports

Losses in State Farm Insurance Co.'s home insurance business have prompted the company to limit or even halt the sale of new homeowner policies in more than 20 states where storms and other problems have caused claims to soar.

Customers in those states who already have homeowner policies with State Farm will not be affected, the company said. However, the Kansas City Star reported that Missouri homeowners with existing policies will pay an average of nearly 13 percent to renew them.

Officials say State Farm, the nation's largest home insurer, has policies on more than 15 million homes nationwide. It insures 25 percent of the homes in Missouri, a total of 370,000 households.

Phil Supple, spokesman for the Bloomington-based company, said Thursday that catastrophes and other factors have caused a significant increase in the number of claims. Coupled with the rising cost of repairs, inadequate premiums and reduced investment income, he said, losses have created an environment that discourages taking on new clients.

"Rapid and significant growth magnifies losses ... when a company is already experiencing losses," Supple said.

State Farm reported a $5 billion dollar net loss in 2001. Analysts say the company is following a trend by cutting growth in what has been an unprofitable market within the industry.

A hail storm in St. Louis last year and an ice storm in Kansas City this year are two of the weather catastrophes that have boosted claims, said Jenni Behymer, a public affairs specialist for the State Farm in Columbia, Mo. She said the company paid out $2.50 for each dollar Missouri policyholders paid in 2001.

Local offices are telling people who call in wanting to insure their houses, condominiums or mobile homes to look to other companies for now, Behymer said. "We can't say when the company will start reselling policies."

Common practice

Rob Rueseler, an independent insurance agent in Cape Girardeau, said it is common for companies to stop writing policies in certain situations.

"It happened here with the earthquake," he said, referring to the 1990 prediction by biophysicist Iben Browning of a catastrophic earthquake along the New Madrid Fault. The prediction didn't come true, but some insurance companies stopped writing earthquake policies until further notice.

Supple said regulators in affected states have been notified. Decisions on refusing or curtailing new business are being made at the company's 13 regional offices and the cutbacks are temporary, he added.

"We certainly will be revisiting all of these decisions and return to the marketplace when the business environment and our results allows us," he said.

Bob Hartwig, chief economist for the Insurance Information Institute, said nationwide claims on homeowner policies last year resulted in insurers paying out $8.9 billion more than they received in premiums, second only to the $11.5 billion deficit on homeowner policies insurance companies absorbed when Hurricane Andrew hit in 1992.

"Last year, we didn't have a Hurricane Andrew-type event. What that means is there were many individual factors that contributed to making homeowners insurance tremendously unprofitable in many states," he said.

Hartwig said the terrorist attacks of Sept. 11 are not a contributing factor since most of that damage was commercial. He said the industry has seen massive increases in claims for water damage and a related but relatively new category, mold damage.

Adam Klauber, an insurance industry analyst for Cochran, Coronia & Co., said many companies in the past accepted minor losses in home insurance so they could get their clients' lucrative car insurance business. But as losses in home insurance have increased, he said, many insurers are cutting back on new homeowner policies through tougher underwriting standards or, in some areas, moratoriums.

He said State Farm's temporary refusal to write new policies could make it harder to get coverage in areas where obtaining homeowners' insurance is already difficult.

"It's not great from a consumer standpoint, but the whole industry is moving in that direction," he said.

State Farm is no longer issuing homeowner policies for new customers in Arkansas, Kansas, Louisiana, Missouri, Oklahoma, Texas, California, Montana, Oregon, Washington, Idaho, Hawaii, Alaska, Maryland, West Virginia and coastal North Carolina.

State Farm has also limited new policies in Arizona, New Mexico, Colorado, Utah, Nevada and Wyoming.

Staff writer Sam Blackwell contributed to this report.