For years State Farm Florida Insurance Company has remained one of the few Fortune 500 homeowners insurance companies still doing business in Florida. It is still by far the largest private insurance company in the state for both homes and autos covering 1 million and 2.5 million policyholders respectively.



They deserve credit for that.

After all, following the billions in claims from Hurricane Andrew in 1992, many large insurance companies simply left the State of Florida for good - and never looked back. That left Florida to deal with the problem on its own and caused it to create its own state run insurance company of last resort to help those who simply could not find coverage.

State Farm Florida Insurance Company did not follow this approach.

It has taken a reasonably prudent business approach to the situation that has unfolded in Florida since Hurricane Andrew. These steps have included:

Strict underwriting criteria for homes selected for new business

Multiline discounts for policyholders with home, auto, and life coverage

Selectively cancelling higher risk older homes closer to the coastline

This approach might have been successful during normal, reasonable periods of history. But things in Florida have been anything but reasonable in recent years:

During the period from 1992 through 2004, no large insurance companies came back into the Florida home insurance market - leaving State Farm on its own.

The 2004/2005 Florida hurricanes caused billions of dollars in claims. State Farm Florida paid millions in claims and had to request an emergency cash infusion from its parent company to recapitalize it.

While the company was able to get significant rate increases after the 04/05 hurricanes, massive rate increases granted to most of the companies in Florida in 2005 and 2006 caused a major political uproar. Quite frankly, Florida home insurance rates were simply not affordable and the public demanded rate reductions.

The pressure to lower rates was made worse by the pressure Florida homeowners felt from outrageous property taxes and the collapse of the Florida real estate market.

The State of Florida responded to the pressure from voters. However the final impact was not impressive.

Legislation passed in 2007 and 2008 had a limited effect in lowering home insurance rates while shifting billions of dollars in catastrophic hurricane risk to the Florida Hurricane Catastrophe Fund - a state entity that has publicly stated that it can't meet its reinsurance obligation to insurance companies in part due to the frozen bond markets.

As a result, all companies including State Farm Florida are concerned that the Florida Cat Fund won't be there to pay them back after a major hurricane and are looking for new sources of backup reinsurance.

That, combined with other factors led the company to request a 47% rate increase a few months ago. When state regulators turned the rate increase down, the company appealed that decision in court. Recently a judge agreed with state regulators that State Farm's 47% rate increase was not justified and also rejected the rate increase.

This brings us to where we are today - a time when many Floridians have to be wondering if State Farm Florida is preparing to exit the state for good. This would not be good news and would be sure to cause chaos in the Florida home insurance marketplace as consumers scramble to find alternative coverage.

In today's uncertain times, you have to be ready to face realities. One of those might be that your State Farm home insurance policy in Florida will be cancelled or dropped. If that happens there are several things you need to do to respond to this:

Shop your policy. Most State Farm Florida agents can only offer you homeowners coverage with Citizens after your policy is cancelled. Find a large independent agent who represents multiple companies in order to give you the best options for replacing State Farm Florida.

There are new Florida base regional insurance companies that have been created over the past 15 years, with many only being recently approved since the start of 2006. Some of these companies might be a good option to replace State Farm but you have to research each and every one of them. Check their financial ratings and customer service history thoroughly.

Insurance agents for State Farm Florida will be hurt by large cancellations of homeowners insurance policies. They have spent years building a book of insurance business in Florida. When they lose your home insurance business, they often lose your auto and life insurance business as well. While you can't help but be sympathetic, you need to know that it is in your agent's self interest to keep your auto and life insurance business while putting your home insurance coverage into Citizens Property Insurance. Don't accept being placed with Citizens without looking for other private home insurance companies through other agents that can also offer you auto and life insurance.

Get all the facts if you are thinking about Citizens Property insurance. Citizens has stated the premiums it charges are not high enough to cover the risks that the company takes. It too is expecting problems borrowing to pay its claims after a major hurricane in today's troubled bond markets. Major recommendations being presently considered at Citizens include raising rates, limiting coverage, and mandating certain home hardening measures. Research Citizens just like you would any other company.

While we don't know how the final situation with State Farm Florida will play out, if you follow these steps you'll be way ahead of hundreds of thousands of policyholders that might be scrambling to get coverage all at once.