State Farm shuts door

State Farm Insurance has stopped writing new homeowner, renter, and condominium insurance policies in at least six western states, including Oregon.

State Farm has more than one in five of these policies in the region or 20 percent of the market, so the decision, announced June 20, has had an impact throughout the industry.

"The more competitors there are out there, it keeps downward pressure on the rates. If you have a player with that big a piece of the pie say they are not writing anymore, it puts (upward) pressure on the market," said Don Fullhart of Fullhart Insurance of Sisters (formerly Sisters Insurance Center), who competes with State Farm.

State Farm will continue to insure existing policy holders or customers who have had policies within the last six months, according to Bryan LaBerge, Public Affairs Specialist with State Farm. However, the company announced an average statewide rate increase of 21.5 percent last May 13.

Announcing the decision not to accept new customers, State Farm Vice President Harold Gray said that "State Farm incurred homeowners losses and expenses of $1.14 for every $1 of premium collected in 2001. We are simply not able to continue to accept new customers under these circumstances."

New customers are more expensive than existing customers, because the company has a better claims history on its existing customer base. It is easier to "factor rates" for existing policy holders, according to LaBerge.

"We have the promise we made to our current customers to remain financially strong, so we made the decision (to halt writing new policies)" said LaBerge. He also said that State Farm is a "mutual" insurance company owned by policy holders, which means "we answer to (existing) policy holders, not investors."

Michelle Wolfe works for Sage Insurance in Bend, and sells policies for competitors of State Farm. As a result of State Farm's decision, Wolfe said her company had seen a lot of potential new customers calling for quotes.

Wolfe said State Farm had pulled out of 24 states, and that the company had suffered large losses due to "mold claims."

"Mold is a huge issue, right now," said Wolfe. Insurers are looking at loss history that goes back five years.

Even contractors who have never had a claim have seen insurance rates double when they can find a carrier, but many companies are not insuring contractors at all, forcing them into the arms of very expensive "specialty carriers."

These costs get passed on to consumers, said Wolfe, who had to find a new insurance carrier for her husband, a finish carpenter.

Fullhart of Sisters has seen the same thing.

"We have seen it in the contractors market, guys who had State Farm have not been renewed. Most of our insurance carriers do not want residential general contractors. I think it is a combination of construction defect claims, the regulatory environment for lawsuits, and some condo development lawsuits in California," he said. "That is tough in a growth area."

Insurance companies are regulated. John Piper, Public Information Officer with the Oregon Insurance Division, said that since there are a number of competitors, the state's position is that it is State Farm's prerogative not to accept new accounts.

Fullhart also said that the bad stock market might have also contributed to the decision.

"(An insurer) might be more willing to accept costs of $1.10 for every $1 they take in, if they are making a lot of money in the stock market. If they are not making money, they want more money from the insurance," he said.

But Fullhart also said that policy renewals have not skyrocketed in cost -- yet. Safeco, an insurance company represented by Fullhart, has said that their homeowners line "has been killing them" for about 10 years, he said. Coast communities and Central Oregon were supposed to see hikes of up to 30 percent.