Read State Farm's Letter To Insurance Commissioner Mike Chaney - - The News for South Mississippi

Read State Farm's Letter To Insurance Commissioner Mike Chaney

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Honorable Mike Chaney
Mississippi Department of Insurance
P.O. Box 79
1001 Woolfolk State Office Building
501 N. West St.
Jackson, MS 39201

June 11, 2008

Re: State Farm Fire and Casualty Rate Filing, State Farm Fire and Casualty Deductibles

Dear Commissioner Chaney:

I am writing you on behalf of State Farm Fire and Casualty Company ("State Farm") concerning the rate and form filings State Farm has made over the last 18 months in Mississippi.

As you are aware, State Farm continues to have serious concerns about the legal environment in Mississippi and its impact on the Mississippi property insurance market. The Attorney General filed a civil suit less than 20 days after Hurricane Katrina struck the Gulf Coast, seeking to invalidate provisions of property insurance contracts in Mississippi, despite the fact that these contracts had been reviewed and approved by the state and the provisions upheld by the courts for years. In addition, some members of the bar, proclaiming to act in the interest of Mississippi policyholders, but actually acting in their own self-interest, filed suits that complicated the ability to handle policyholders claims and also slowed the recovery on the Gulf Coast.

Since Hurricane Katrina, State Farm has paid out in excess of $1.3 billion in claims to over 85,000 property policyholders. In instances where there were differences of opinion, State Farm has used the Department and court sponsored mediation and arbitration programs to resolve hundreds of claims. In April 2007, we reached an agreement with the Department in which we committed to reevaluate approximately 35,000 claims in Jackson, Harrison and Hancock counties at the request of the policyholder. To date, we have made more than $90 million in additional offers, and more than $80 million in payments pursuant to that agreement.

In response to the legal environment in Mississippi, the uncertainty in the Mississippi marketplace and a rapid increase in State Farm's property insurance policy count across the state, State Farm stopped selling new property insurance policies in Mississippi in February of 2007. However, State Farm has not increased home insurance rates, nor addressed its exposure to coastal risk since before Hurricane Katrina made landfall in August, 2005-despite the fact that over a period of 20 years, State Farm's homeowner's (and auto) insurance experience in Mississippi has been marred with significant underwriting losses.

Over the past 18 months, State Farm and the Mississippi DOI have engaged in ongoing discussions concerning the need to balance the interests of Mississippi residents with State Farm's need to properly manage its exposure in the Mississippi Gulf Coast. State Farm has made numerous revisions to its business plans based upon the input and concerns expressed by Department of Insurance personnel and continues to seek public policy solutions that will stabilize the volatility of the coastal market.

State Farm Fire and Casualty Fire Rate Request:

On September 7, 2006, State Farm Fire and Casualty Company made a rate filing seeking to implement certain rate increases, and in many cases decreases, across Mississippi. State Farm understands this filing was subsequently sent by the Department to a consulting actuary for review. In November, 2006, State Farm was notified the consulting actuary found the rate request justified. In December, 2006, State Farm received additional questions from the Department which were partially answered on December 22, 2006. It is State Farm's understanding that this filing was "signed" by Commissioner Dale, and we believe it should be deemed approved pursuant to Mississippi Insurance Code Section 83-2-7(1).

Underwriting Guidelines

On December 20th, 2006, the Department inquired into underwriting restrictions State Farm Fire and Casualty Company imposed, or anticipated imposing in the future, on the sale or renewal of policies. In response, State Farm filed an explanation of existing underwriting restrictions on new and renewal business. As you are aware, the document was filed confidentially to ensure that State Farm did not release information that could be deemed in violation of state or federal antitrust laws or trade secret laws.

Today, State Farm is attaching a revision to this document as Exhibit A. As before, State Farm believes this information must remain confidential in order to avoid violation of state and federal antitrust and trade secret laws. Failure to do so could cause others to act before they are approved or implemented which could be harmful to the interests of State Farm and the residents of Mississippi statewide.

Consistent with State and Federal law, State Farm would seek an opportunity to assert such concerns (should it elect to do so), in a court of competent jurisdiction, should a Sunshine request for the attached exhibits be tendered, and the Department feel compelled to produce these documents.

Any action subject to Exhibit "A" would be compliant with Bulletin number 2005-13 and subsequent amendments. As you can see, the actions indicated will not affect existing policyholders any sooner than November 1, 2008.

State Farm Fire and Casualty Company Fire Deductibles

Pursuant to Section 83-2-3(2)(d), State Farm seeks to impose certain minimum deductibles on fire policies in zones 10, 20 and 32. These deductibles are being sought in order to maintain wind coverage, or retain the underlying homeowners coverage on a significant number of policies in the lower 6 counties along the Mississippi Gulf Coast (George, Stone, Pearl River, Jackson, Harrison and Hancock Counties). State Farm would ask that the Department grant an exception to the deductible "buy-back" requirements set forth in 83-2-3(2) as follows:

In Zone 10, State Farm seeks to convert all fire policies to a minimum 1% all peril deductible. In addition, State Farm seeks to convert all fire policies in which we retain wind coverage to a minimum 5% hurricane deductible.

In Zone 20, State Farm seeks to convert all fire policies to a minimum 1% all peril deductible. In addition, State Farm seeks to convert all fire policies to a minimum 5% hurricane deductible. Should a policyholder certify their home through the Institute for Building and Home Safety ("IBHS"), State Farm would offer a 2% minimum hurricane deductible to that policyholder.

In Zone 32, State Farm seeks to convert all fire policies to a minimum 1% all peril deductible. In addition, State Farm seeks to convert all fire policies to a minimum 2% hurricane deductible. Should a policyholder certify their home through IBHS, State Farm would not require a hurricane deductible for that policyholder.

A copy of a revised State Farm Hurricane Deductible rule is attached hereto as Exhibit B.

State Farm would request the Commissioner approve an exception to any and all buy-back requirements. Without it State Farm will be forced to reconsider and revise its Underwriting Guidelines further reducing the number of policies where it is able to maintain coverage.

State Farm would seek to notify policyholders of the conversion to minimum deductibles in the summer of 2008 and to begin converting policies upon renewal to the revised minimum deductibles in late fall of 2008.

Removal of Coverage C from Wind/Hail Endorsement

Currently, State Farm provides coverage for additional living expenses and prohibitive use for wind damage as part of its Wind/Hail Endorsement filed and used in Mississippi. Nearly all Gulf states retain all, or most, of these coverages for the wind peril within the States' windpool, or beach plan when a policyholder obtains wind coverage from such plans.

It is State Farm's understanding that Mississippi's Wind and Hail Underwriting Association has considered doing the same. Since claims for these coverages caused by wind damage are a component of the wind, State Farm seeks to exclude this coverage from its policies in which it does not retain the wind/hail coverage. State Farm will file a revised Wind/Hail Endorsement for wind damage without this coverage and if approved, plans to begin using the new endorsement on, or after, November 1, 2008.

I want to thank you for the concern you have shown for our policyholders across Mississippi, the residents of the Mississippi Gulf Coast and our own agents and employees as we continue to work through these very difficult times. It is important to note that the actions enumerated herein, particularly those relating to coastal exposure, are similar to than those we have already taken in surrounding states. State Farm will continue to review the Mississippi marketplace in the coming months to determine how best to proceed in the State. Your continued willingness to discuss and work through these difficult decisions in the future, will be greatly appreciated.

Yours very truly

Webb Howell

Cc: Adam Swope, Actuary-State Farm Insurance

Lee Harrell, Deputy Insurance Commissioner
John Wells, Director - Rating Division

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