State Farm to Pull out of Mississippi Home Insurance

State Farm has 30.3% of the Mississippi state home insurance market, the biggest slice of the pie. Yet, the company has decided to cease writing new policies for the market. Robert L. Trippel, a senior claims officer with parent company State Farm Mutual Automobile Insurance, said in a statement Wednesday, “[I]t is no longer prudent for us to take on additional risk in a legal and business environment that is becoming more unpredictable. When there’s more certainty, we will reassess the situation.” State Farm is making a huge mistake.

The company says that its policies don’t cover wind damage that comes with a storm surge. There are at least 200 Katrina-related lawsuits in Mississippi that are based on a contrary interpretation of the policies. State Farm offered a class-action settlement that would have paid on a percentage of the damage done, but a federal judge tossed it out. Mississippi Attorney General Jim Hood had begun a criminal investigation, which he dropped when the settlement was offered. Whether he will revive the investigation is unclear at this point.

State Farm recorded a net income of $3.24 billion in 2005 on revenue of about $60 billion, down 39% from the $5.31 billion in net income for 2004. While the number is down, State Farm is not losing money at all. State Farm has stated in the media that it has already handled over 84,000 non-auto property claims in Mississippi that resulted from Katrina, paying over $1 billion in damages there. It claims fewer than 2% of its Katrina claims remain unsettled.

Anita Lee, who reports for the Sun Herald in Biloxi, Mississippi, wrote, “State and federal initiatives are in the works, including bills to establish national multiple-peril insurance, remove the insurance industry's exemption from antitrust laws and examine industry claims practices in the wake of Hurricane Katrina.” This is a road that the insurance industry doesn’t want to travel, as it holds a highly privileged position in American capitalism. Besides, a better approach exists.

An Englishman with the Victorian name of Cuthbert Evan Heath worked at Lloyd’s insurance and is credited with establishing the non-marine insurance business there. Many of his policyholders lived in San Francisco, which was flattened in 1906 by an earthquake. Mr. Heath wired his people in California, “Pay all of our policy holders in full irrespective of the terms of their policies.” It cost the equivalent of $1 billion in today’s funds. In a biography of Heath, Anthony Brown writes: “By 1907, Heath was writing for 20 Names, and business on his syndicate was booming. One reason for this was that his attitude over the San Francisco earthquake had redounded to the credit of the London market, and helped Cuthbert himself to show a dramatic rise in profits. The syndicate’s average profits per name in 1906 had been £431. Now largely as a result of the improved rates on earthquake business, they had risen to £1,435.” It’s a shame State Farm is so lacking in vision.

© Copyright 2007 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

Home