Farmers the latest insurance company to announce departure from Florida

Los Angeles-based Farmers Insurance, the group with the quirky TV commercials and actor J.K. Simmons, announced it would be withdrawing from the Sunshine State, leaving tens of thousands of policyholders for homes, condos, and even vehicles scrambling to start the process over.

Farmers becomes the fourth major insurer to pull out of Florida in the past year, while 15 have stopped writing new policies and seven have been declared insolvent over the past 18 months.

Already this year, 18 of Florida's 110 insurers were put on a watch list for extra supervision.

Thursday, AAA insurance officials said the company has decided to issue some non-renewals, stating that the insurance market in Florida has "become challenging in recent years."

The latest decision by Farmers, which "was necessary to effectively manage risk exposure," the company said, does not sit well with state regulators or even officials from other insurance agencies, such as the PVG Insurance Group on Key Biscayne, directed by Alejandro Pérez Duque.

"A carrier exiting the state is the most extreme measure, as they could have opted to stay with current clients and stopped taking on new policies if they had aggregate issues," he said.

"The policyholders will now have to begin from Step 1 the process of obtaining new policies; not just homeowners, with the required inspections and challenging market conditions, but also auto policies which, although not ideal, is not as difficult."

Farmers' decision, which officials said is based on the growing costs of natural disasters and construction, comes just a little over a month into the hurricane season and a year after Florida residents filed 678,986 personal and commercial claims, almost 42% of which were hurricane-related, according to the state's Property Insurance Stability Report.

Hurricane Ian, in late September, caused $114 billion in inflation-adjusted damage, according to a report from the National Oceanic and Atmospheric Administration, making it the most expensive storm to ever hit the state and the third-most expensive in U.S. history after Katrina in 2005 and Harvey in 2017.

In turn, homeowners' insurance rates in Florida this year are expected to soar by about 40%, several reports have indicated.

By the end of 2022, the average annual property insurance premium in the state had risen to more than $4,200 and since has risen to $6,000 — compared with a national average of $1,700, according to Mark Friedlander, a spokesperson for the Insurance Information Institute. The average annual premium in Florida increased 42% over the past year and 100% over the past three years, he told CNN.

About 12% of homeowners in Florida in 2022 did not have property insurance, compared with the national average of 5%, according to the Insurance Information Institute.

Under Florida law, companies such as Farmers Insurance are required to give three months' notice to the Office of Insurance Regulation before they tell customers their policies won't be renewed.

Florida's Chief Financial Officer, Jimmy Patronis, vowed to investigate, saying he will "... explore every avenue possible for holding them accountable" for simply leaving their clients stranded.

Farmer's move reportedly affects about 30% of the company's estimated 100,000 policyholders in Florida. Existing policies will remain active until they expire but will not be renewed. Policies offered by Farmers under the brands Bristol West and Foremost are not affected.

The effects of a large company's withdrawal from the state could have compound issues.

"The Florida insurance market, particularly property insurance, is in disarray," Pérez Duque said.

"Property insurance includes, from homeowners to condo associations to commercial buildings, like retail and office (space), to pretty much anything that is brick and mortar. This affects both owners and tenants as the very high costs and limited capacity trickle down to all residents."

Having been a veteran of the insurance business, he knows that reinsurance capacity (what protects insurance companies) is limited and comes with "peak pricing."

"So, if carriers cannot find a way to be profitable when taking on windstorm risk, and a bonanza of bogus and frivolous litigation is only benefiting certain law firms and public adjusters with unethical practices, carriers either stop taking in new clients or they hit the exit door, which is what Farmers did."

Insurance companies in California and Louisiana also are doing the same in the wake of localized disasters.

Even with new legislative laws enacted this year to try and protect Florida's property owners from soaring rates and insurance companies from unscrupulous practices, don't expect a quick fix yet.

"It will take time for the Florida insurance industry to get healthier and until then, policyholders will suffer the highest insurance costs in the nation, and scarce availability, until new capacity enters the market," Pérez Duque said.