State Farm Is Warming Up to Florida

(MoneyWatch)  After a two-year battle in which the nation's largest home insurer packed its bags and almost left the Sunshine State, State Farm seems to be warming up to staying put in Florida.

Part of the new feel-good era may have to do with the crumbling colossus of Charlie Crist, Florida's governor and wanna-be U.S. Senator, who appears to have been abandoned by Republicans due to his more liberal stance.

But of more importance could be the realization by Insurance Commissioner Kevin McCarty, who is no fool, that if State Farm left the homeowners market, it would throw 770,000 of the state's policyholders into a state-run program that is already overburdened - and would double its size.

State Farm threatened to leave the Florida homeowners' market in 2009 when it couldn't get rate increases totaling 70 percent that it said it needed to make a profit. Crist bid the insurer "Good riddance," and State Farm prepared to go.

But a funny thing happened on the way to the state line. State Farm filed with the commissioner to negotiate its withdrawal six months ago, but the hearing date kept getting pushed back. There have been at least four such postponements and the December 17 hearing has been rescheduled for January 25, 2010.

And McCarty has been making statements that sound as if he knows what's going on in State Farm's boardroom in Bloomington, Illinois. In September McCarty told the Florida cabinet that it would be better if the insurer stayed, even as a scaled-down company. Then two weeks ago he told the Palm Beach Post he was "cautiously optimistic" about keeping State Farm.

The likely outcome: a compromise. State Farm will stay, get a significant but not overwhelming rate increase, and reduce its policyholders gradually, so that the trauma won't overwhelm this hurricane-ridden state. This should make both sides happy. Florida wants State Farm to help insure homeowners and State Farm wants to curtail the number of policyholders so that another Hurricane Andrew won't wipe it out.

"A smaller, leaner State Farm in Florida is better than no State Farm in Florida," says McCarty, a man for all seasons.