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The Honolulu Advertiser
Posted on: Thursday, June 13, 2002

Insurer restricting new homeowners' policies

By Frank Cho
Advertiser Staff Writer

State Farm Insurance, Hawai'i's largest insurer, has begun restricting the number of new homeowners' policies it writes in the Islands, citing rising claims costs and its growing share of the market.

State Farm, which has about 25 percent of the state's home insurance business under contract, said the move is an effort to keep the company financially sound. It comes just one month after the California arm of the nation's largest home insurer suspended writing new homeowner policies in that state.

It was not clear yesterday how long the company will limit the number of policies it writes in Hawai'i. A company spokeswoman said some State Farm agents continue to write some new policies, but she said she could not say how many.

The move does not affect current State Farm customers, whose policies will continue to be renewed.

"At some point you are growing too fast. You can say we need to catch our breath for a moment," said Carolyn Fujioka, spokeswoman for State Farm.

This is the first time that a home insurer in the state has restricted its agents from writing new homeowner policies since the aftermath of Hurricane Iniki in 1992. The move could mean higher rates for homeowners searching for policies and a likely boom for competing insurers that had been losing ground to State Farm in recent years.

A spokesman for the state insurance division, which regulates the industry in Hawai'i, said the agency had not been notified about the restrictions and declined to comment.

Insurance companies have been under increased financial pressure since the Sept. 11 terrorist attacks, with the industry suffering its first-ever annual loss last year because of poor returns from investment portfolios and increasing claims.

State Farm lost $5 billion in 2001, compared with a profit of $400 million the previous year. Net worth of State Farm Mutual, the parent of State Farms' family of companies, fell by $5.7 billion to $38 billion.

State Farm General, the California arm of the nation's largest home insurer, suspended writing homeowner policies for new customers as of May 1 in the state of California.

Fujioka said the decision to restrict new homeowner policies in Hawai'i has nothing to do with losses suffered by State Farm on the Mainland.

"This is kind of an evolving process. The overall financial stability of the company is what is being dealt with so every state has to look at its individual situation and respond accordingly," Fujioka said. "We are financially very sound and will continue to be that if we properly manage our growth."

Hawai'i homeowners long have paid among the highest premiums in the country. Analysts say this is partly because of Hawai'i's expensive real estate market, high cost of construction and high risk of hurricane damage.

In 1999, the state's chief insurance regulator ordered reductions for the first time in homeowners' insurance rates after the state found that an average of nearly 50 cents of every premium dollar collected from homeowners' insurance over the past seven years stayed in the pockets of insurance companies as profit.

In 2000, State Farm received approval from state regulators for a 3.9 percent reduction in rates.

State Farm Insurance, the state's largest home insurance company with more than 25 percent of the market, has lowered its home insurance rates at least twice since early 1998.

Fujioka said State Farm, which has 54 agents statewide, is also looking to reduce its exposure in Hawai'i's auto insurance market.

"There are legal requirements and you just can't stop writing auto insurance," Fujioka said. "But there are other things we can do."

Fujioka said the company, also one of the state's largest auto insurers, has made no decisions on what it will do, but, among other things, it could begin to raise rates and stop advertising to help reduce demand for auto insurance products.

"It's a prudent business decision that will maintain our financial integrity," Fujioka said.

Last month, the insurer announced its first rate increase for auto insurance in more than 10 years. State Farm Mutual and its affiliate State Farm Fire and Casualty Insurance increased rates by an average of 6.9 percent and 7.3 percent, respectively, affecting about 120,000 drivers statewide. The company last raised rates in October 1991 and attributed the new increases to higher medical and car-repair costs.