State Farm: Ain't No Sunshine When You're Gone

Today, the state of Florida receives the records of more than one million State Farm Mutual policy holders it will use to decide if -- and how -- it wants to hurt the giant insurer for bailing out of its property insurance lines in the Sunshine State.

The battle between the nation's largest home insurer and Florida's Republican governor Charlie Crist -- who has gone farther than any Democrat in socializing insurance -- has national implications and raises an even bigger question: Should government have a bigger say in running financial institutions it bails out?

State Farm says no. Faced with what it claims are huge losses from competing with Florida's state-run insurance company and a backup fund supported by state bonds, it asked for a 47 percent increase in homeowner rates from the state. When regulators shook their heads, State Farm said it would cancel homeowner policies within two years.

Florida responded with a subpoena for State Farm's records. Floridians warned State Farm that if it dropped their homeowner policies they'd cancel their auto insurance -- a lucrative piece of business that the insurer doesn't want to lose. Other insurers, albeit high-priced ones, are scrambling to pick up State Farm's business. The Wall Street Journal editorial page attacked Crist on Feb. 4, and Crist fired back at State Farm in a letter to the WSJ on Feb. 6.

All this may just be gorilla dust, with State Farm browbeating Florida to give the company leverage on rate increases and the state browbeating the company into staying put.

But State Farm isn't known for backing down. After Hurricane Katrina it took on politically-connected Mississippi lawyer Richard Scruggs in an all-out bloodbath that saw the company slammed on national television. The outcome is that Scruggs is going to jail while State Farm is still around.

A final thought: if another $43 billion hurricane like 2005's Katrina hits Florida and overwhelms Crist's state-run system, what's next? Insurers like Allstate are advocating a National Catastrophe Fund propped up by all property insurers. But that could lead to higher home insurance prices all across the country.