Chip Merlin on “State Farm’s Power Play and Propaganda Ploy”
State Farm’s decision to withdraw from Florida has invited comment and Florida attorney Chip Merlin allowed us to cross post his comments here.
State Farm is hard to figure out. They say one thing and often do another. When you finally get to the decision makers, there is usually some logic to why they do things despite disagreement from consumers or regulators. State Farm’s announcement that it was leaving the Florida property market really has me wondering–”what’s up?” From what I read and hear, I am not the only one.
The number of building policies affected is estimated to be between 800,000 and 950,000. Only Citizens Property Insurance Corporation insures more structures in Florida. Approximately 1.2 million total policies will be phased out by State Farm over two years. Under Florida law, State Farm has to file a plan to remove itself from Florida. Kevin McCarty, of the Office of Insurance Regulation, will then step into the picture to evaluate and investigate State Farm’s actions.
McCarty has taken a very calm ‘wait and see’ attitude. Very smart. He knows that State Farm does not just announce leaving a market without a strategic plan in place to help its overall position throughout the country and in Florida.
State Farm is an extremely effective propagandist. State Farm’s internal manuals make clear that it uses employees and agents to influence politicians and media representatives. It places snippets of information, some truthful facts and quotes with the media, trying to influence what it wants to be read and heard. It uses lobbyists and politicians favorable towards it to influence other leaders.
State Farm’s business plan involves government action. It seeks regulations and laws favorable to it and which often support common interests with other insurers (Allstate and Nationwide) in the property and casualty business.
The people at State Farm in Bloomington — not Florida — that made this decision think about the ramifications of these important decisions in a very global context. They want State Farm to remain the dominant player in the personal lines insurance market, and use propagandists and lobbyists to make it so. When subtle propaganda does not work, it can also be a bully. It uses shock and threatening actions against those not in agreement.
McCarty should thoroughly investigate State Farm’s true agenda and strategic desires through his ability to analyze the removal plan. A detailed investigation by his office may reveal the truth of State Farm’s long term goals and uncover how it orchestrated this last action in the press and in Tallahassee. If State Farm truly has honest information in its internal memos and plans for its latest actions which suggest that it is in peril, it should have no problem allowing Florida to scan its computers verifying those facts.
Until then, we will hear sob stories about the Sate Farm agents and employees who are being hurt. We will hear stories about the poor policyholders (I am one of them) that will be forced to look for insurance. We will hear cries that Florida regulators forced this decision because they are unfair. We will hear every excuse in the world through a stream of public relations media ploys that are simply propaganda intended to convince us to accept the power of State Farm.
It has a lot of power because it has an army of people it financially supports to carry out this mission.
Corporations only exist because humans allow them to. These fictitious entities, by law, are generally under state charters requiring them to promote social welfare as well as profit. Because they never die, these fictitious entities can accumulate vast wealth which can then be used to influence how government and society should be run.
Power is vested in State Farm because laws exist which allow fictitious, non-voting entities to contribute to politicians and lobby human leaders. State Farm is openly challenging our leaders at this very moment through its announcement. It will use all its power and propaganda to get what it wants regardless of whether it is in the best interests of policyholders, agents, employees and people in general.
God bless Kevin McCarty and other strong leaders caring for us. State Farm does not worry about God because, unlike the rest of us, it is never going to heaven or hell.
All the big companies are going to ask for substantial premium increases and also try to shed catastrophe exposure because of their investment losses. They have to account for enough capital to pay for a major catastrophe and they are not about to pay the excessive reinsurance rates that they expect the state-sponsored risk pools to pay.
State Farm probably is hoping for an agreement allowing them to raise rates a little bit below their origial request and drop some policies.
Brian Martin
January 29, 2009 at 4:14 pm
Florida request for information from State Farm-
http://www.floir.com/pdf/StateFarmFloridaSubpoena01292009.pdf
Steve
January 30, 2009 at 12:23 am
Thanks, Steve, I was interested in a document posted on the All Board today from this same website that had a broken link. If you happen to stop by there, take a look and see if you recognize it and let me know how to find it. It’s the first post on a State Farm thread. Appreciate it.
nowdoucit
January 30, 2009 at 12:32 am
It was a link to an agent trade group in Florida. They hate the People’s Trust insurance company and have tried to kill the company. I imagine State Farm and others are supporters of this move.
Here is my favorite quote from the link which is an instruction manual for agents on how to destroy the People’s Trust insurance company—
“”Even a cursory examination of PT’s website quotation system makes it clear to an insurance professional why some consumers think they are paying less. First of all, they are paying less! Unfortunately, many don’t realize the same coverages quoted with PT often cost less somewhere else. Here’s how PT’s website confuses some consumers.”"
One thing this guy does is use a rather ala carte system for coverage. This is opposed to a system where many pay for things like out buildings in their policy when infact they don’t have an out building on their property.
http://www.faia.com/core/contentmanager/uploads/Public%20Relations/Agents%20Confidential%20PDFs/2008-2009%20Vol.%20LVIII/People's%20Trust%20Memo.pdf
LETTERS & THREATS—You may recall our memo regarding People’s Trust Insurance Company (PT); many of
you emailed or called to say it was well done and accurate—a few even sent more examples. Well…FAIA
headquarters is now in receipt of a letter from PT’s attorney directing that we “…immediately CEASE and DESIST
any further distribution of the defamatory flyer…” and containing other legal sounding statements. Quite typical in
matters such as these, PT’s “attempts” to intimidate FAIA or to inhibit our future efforts to report the facts will not
succeed. Since you are the owners of FAIA and since the letter specifically referenced agents, we thought you’d
like a copy, which you can read (along with PT’s attachment) by clicking here. Of course, we stand by everything
in our memo and indeed are finding more “point provers” every day. FAIA’s attorney is on the case, with copies of
our backup information, PT’s website, and its full page ads. Finally, none of this should dissuade you from
continuing to send us relevant information, particularly if it involves consumers who may have been confused by
PT’s marketing tactics. As we said before, good or bad, we’ll print the truth and let you do with it what you may.
Steve
January 30, 2009 at 1:18 am
PEOPLE’S TRUST INSURANCE COMPANY
MEMO
To: All Florida Agents
From: The Florida Association of Insurance Agents
Subject: The Truth about People’s Trust
Several months ago, FAIA began receiving complaints that an insurance
company, whose advertising was critical of agents, may also be
misrepresenting its price, or the reasons for that price, in potential violation
of §626.9541, F.S.—Unfair methods of competition and unfair or deceptive
acts or practices defined. And, we were told that its website quotation
system was misleading consumers into thinking they could save money,
without giving up important coverages.
The company’s name is People’s Trust (PT); the carrier is advertising that it
has a lower price, in part because it has eliminated “high commission”
independent agents from its acquisition expenses. Our investigation
revealed the complaints we received had merit, particularly with respect to
its website. Looking even closer, pulling the carrier’s rate filing, we’ve
discovered other issues we’ll share with the Office of Insurance Regulation
(OIR).
First of all, even though PT doesn’t use agents, it rarely results in the
lowest price. As we explain below, when comparing apples-to-apples, its
price can often be higher. Which means…when it’s lower, it’s usually
because consumers lost important coverage, not because they lost the
service of their hometown agent. Besides, according to OIR records, the
company’s “filed” acquisition cost (where you find any agent and brokerage
fees) is 30 percent, or roughly a third of the premium. While MGAs may
sometimes receive that much, a portion is usually passed on to agents. If
PT’s price isn’t lower, and in many apples-to-apples quotes it’s not, where
is it sending what would otherwise be paid to an agent? Who owns the
MGA and who gets a share of that percentage? And…who gets the $25 per
policy MGA fee if there is one? Isn’t it true that, in situations like this, it
always boils down to the same thing? What a company saves by not
paying agents is more than offset paying someone else to underwrite,
rate, advertise (I.E. full page ads), service, and sell.
Even a cursory examination of PT’s website quotation system makes it
clear to an insurance professional why some consumers think they are
paying less. First of all, they are paying less! Unfortunately, many don’t
realize the same coverages quoted with PT often cost less somewhere
else. Here’s how PT’s website confuses some consumers.
First, with no help for those who don’t know what it is or how to calculate it,
PT’s website asks for (among other things) dwelling replacement value
without even attempting to explain any penalty for carrying too little. Then, it
cleverly highlights extremely low coverage options without any analysis of
need via a system of lowball defaults, as follows:
o Other Structures (Coverage B) defaults to two percent (2%).
o Personal Property (Coverage C) defaults to zero.
o Liability and med-pay default to $100,000 and $2,000, respectively.
o Hurricane deductible defaults to 10 percent.
o AOP deductible defaults to $2,500.
o Sinkhole defaults to “no.”
o Replacement cost on contents (assuming you have any Coverage C
at all) defaults to “no.”
Of course, we have numerous quote comparisons from the field and have
PT’s rate filing under scrutiny, but…when an FAIA staff member accepted
all the defaults, his premium was $428.00 vs. $850 from a standard
carrier—again, looking at the coverage he had to give up, it was like
sleeping in the park to save on rent. Besides, “IF” a consumer wants lower
coverage, there are many agents/companies who’ll accommodate.
Unfortunately, nowhere (that we could find) did PT’s website explain that a
consumer could get both—a lower price and personal service—with an
apples-to-apples quote from an independent agent.
We urge anyone—company, agent, regulator, lawmaker, or industry
associate—to check out PT’s claims by going to
http://www.peoplestrustinsurance.com and getting a quote. Do it with and without
the defaults. Compare apples to apples with quotes from other sources.
Fax (850-668-2852) or email (dnewell@faia.com) the results to us. If you
know of a consumer who feels deceived by PT’s approach, please let us
know who they are and how to contact them. And, of course, send us
examples; include dec pages and rate sheets showing prices for
comparable coverage. We’ll report the whole truth, good or bad, for you
and your clients to “independently” use and decipher as you see fit.
Finally, it’s important to mention that PT is new to Florida’s scene and, like
most (but, not all) domestic property carriers, it only has an A rating from
Demotech; it is unrated by A.M. Best. And…PT has no claims handling
record to speak of. In fact, it received a Certificate of Authority in March of
this year, so its only brush with disaster is Tropical Storm Fay. How it would
respond to eight hurricanes in sixteen months, as we had during the
2004/2005 storm seasons, should be a key concern for most consumers.
This document has been formatted in Word so that those who choose to
may, independent of others, cut, paste, and adapt any portions onto their
own letterhead for distribution to clients and interested parties.
THE FLORIDA ASSOCIATION OF INSURANCE AGENTS
Telephone: 850-893-4155
Steve
January 30, 2009 at 1:19 am
Thanks.Really Interesting.
nowdoucit
January 30, 2009 at 1:45 am
Yes. They were trying to get their agents to have people file complaints against People’s so they would be able to tell people the company has alot of complaints against it at the state regulator’s office. Agents also went online with the assault using information from the above memo in my opinion. You can goto consumer rating sites and see “customers” of Peoples using the same language of the above letter to rate the company as having poor insurance products.
If you read the companies website you can see the guy really understands the insurance business and is doing everything to ensure people can get viable insurance products at the lowerst possible cost. There are trade off’s but most would prefer the way he does business.
It also show the real impact he had when he came out with his press release. It was like having Darth Vadar come out with the message. He is a consumer advocate company. New line of player in the insurance mess.
Steve
January 30, 2009 at 2:01 am
This FL situation is like an epsisode of “24″. There are a lot stories within the story.
So PT sells direct and that model eliminates agent commissions. These usually run 10%-15%. The consumer ultimately decides if there is value in an agent. I personally think there is, especially in a market like FL.
Steve did a good job of summarizing the web site. There are some difficult decisions for the average consumer to make. The default to a 10% Named Storm deductible is a big decision for most consumers. I think his summary reflects the value an agent can add to the “value proposition”, Another benefit, not ususally considered by the consumer, is the agent must carry Errors and Commission coverage. This is a line of protection for the consumer. If you are dealing directly with the carrier the consumer is own their own as the consumer is totally responsible for the choices.
This conflict between FAIA and PT is just another sub-plot in the story. As Sop advises, keep a good supply of popcorn.
supsalemgr
January 30, 2009 at 6:58 am
Once again, Steve burns my feeble brain.
Richard Trahant
January 30, 2009 at 8:37 pm
Then, you may not want to read this Rick (just teasing) Chip added a short addendum today – the devil is in the details – and linked State Farm’s plan for withdrawal.
http://www.propertyinsurancecoveragelaw.com/2009/01/articles/insurance/the-devil-is-in-the-details/
When you read this, remember, SF has elected not to renew thousands of policies so they have fewer policyholders by choice. Beginning on page 8 they explain the impact of that decision.
nowdoucit
January 30, 2009 at 9:03 pm
We heard this same garbage from ANPAC Louisiana, Inc. when it was the first insurer, very soon post-Katrina, begging for a rate increase. The spokesperson told the rating commission how badly his company was “hurting.” As one of their insureds at the time whose claim still had not been paid, I was appalled.
These insurers should not be able to incorporate these state-based, wholly owned subsidiaries and then poor-mouth like they don’t have any money, while their parent companies rake in billions of dollars.
Richard Trahant
January 31, 2009 at 10:25 am
Could not agree with you more. It’s their “cute way” to get Congress to do what they want – and so insulting to assume we’re all too dumb to figure out the “act” -
nowdoucit
January 31, 2009 at 1:21 pm
Richard,
Great point. I am pondering the legal proceedings of State Fam’s request for the rate increase. As you note, the “parent companies rake in billions.”
“State Farm Florida” paid “State Farm Mutual” millions for the cost of reinsurance. It essentially paid itself and called it an expense to lower the profitability and surplus of State Farm Florida.
Chip
Chip Merlin
January 31, 2009 at 1:27 pm
Chip:
I wonder what the the tax consequences of making this kind of payment to your parent company would be.
I understand the concept of insurance groups. But, what could be the rationale for state-based subsidiaries? Within the context of an auto case, I learned in a depostion that the ANPAC Louisiana subsidiary actually had NO employees. In fact, at the time of the deposition, ANPAC Louisiana did not even maintain an office in the State of Louisiana. Go figure.
Richard Trahant
February 1, 2009 at 9:00 am
None Rick. A subsidiary can generally pass dividends upstream tax free.
sop
sop81_1
February 1, 2009 at 12:27 pm