State Farm's decision Wednesday to suspend writing new homeowners' insurance policies will have no effect on current policy holders, said Robert Pannell, owner of Robert Pannell State Farm on Grand Boulevard in Greenwood.
"State Farm is going to take care of their current policy holders first," Pannell said today. "That's what they're doing. They're just not accepting new business. They're going to do everything they got on the books for existing homeowners."
Mississippi's largest homeowner insurer announced it has had enough of the "untenable" legal and political climate in the aftermath of Hurricane Katrina and was suspending writing new homeowners and commercial policies in a state still struggling to recover.
A spokesman for State Farm Insurance Co. said the decision was due in part to the wave of litigation the company has encountered since the Aug. 29, 2005, storm.
Mississippi is the latest state along the hurricane-vulnerable Gulf Coast to at least temporarily lose an insurer. But for current State Farm customers, it will not be difficult to renew policies, Pannell said.
"This has happened before, not due to Katrina but due to other issues," Pannell said. "Normally it is a temporary thing. In my opinion, what they're trying to resolve is contractual language."
State Farm has more than 30 percent of the homeowners policies and 8.5 percent of its commercial policies in Mississippi. The company said the suspension would begin Friday and continue until the business climate in the state is more palatable.
As far as its current homeowner and commercial policies in the state, the company said in a statement that it continues to assess its position in the Mississippi marketplace "to determine what further steps, if any, are necessary."
Pannell said that since Katrina, State Farm was one of the few places you could get insurance on the Gulf Coast.
"I do think level heads will come together," Pannell said. "To rebuild, insurance is necessary, so instead of fighting, agreement will have to be reached. The insurance commissioner, insurance companies and state Legislature are going to have to sit down and resolve the problem."
The suspension does not impact State Farm's financial services, banking products or automobile coverage in the state.
Mike Fernandez, vice president of public affairs for State Farm, said Mississippi's "current legal and political environment is simply untenable. We're just not in a position to accept any additional risk in this homeowners' market."
The suspension was not a direct response to any specific development in the litigation, Fernandez said. That litigation has included a recent federal jury's $2.5 million punitive damage award to a couple who sued State Farm for refusing to cover the Katrina's storm surge damage to their Biloxi home.
J. Robert Hunter, a former Texas Insurance Commissioner and now director of insurance for the Consumer Federation of America, said many other major insurers may be reluctant to step in and fill the void left by State Farm in Mississippi.
"A lot of the larger companies already are reluctant to write new business there," Hunter said.
He said the action "will obviously make rates higher for people trying to get new policies. People with existing policies are probably going to pay more too just because of supply and demand."
Robert Hartwig, vice president and chief economist for the Insurance Information Institute in New York, an industry-funded group, said the courts and some Mississippi officials have created a "virtually impossible working environment for insurers."
"I view this decision as the inevitable outcome of the increased uncertainty and cost associated with the litigation that has developed post-Katrina," Hartwig said of State Farm's decision.
Mississippi Insurance Commissioner George Dale said the company's suspension of writing new policies comes at a time in the recovery process when "it is becoming more vital than ever that policyholders in Mississippi have a viable and affordable insurance market."
"State Farm's decision is a stark reminder that the issues brought about by Hurricane Katrina affect not only the coast, but policyholders all across the state," Dale said in a statement.
State Farm has agreed to settle hundreds of lawsuits by policyholders and reopen and pay thousands of other disputed claims. The landmark deal is potentially worth hundreds of millions of dollars for Mississippi homeowners devastated by Katrina. Fernandez said the company had written roughly 29,000 new homeowner policies in the Mississippi in 2006, while other companies were writing a smaller percentage of claims.
Mississippi is the only state where his company has suspended writing new policies.
