Big Insurers Limit Arizona Policies

by David Wichner, The Arizona Daily Star
Wednesday May 15 05:20 AM EDT

Reflecting a tough insurance market nationwide, three of Arizona’s biggest auto and home insurers – including market leader State Farm Mutual – are moving to limit new business in the state.

Insurers say the moves are needed to stabilize their businesses amid rising claims and high demand for policies.

State Farm and Prudential Property and Casualty Insurance Co. have recently placed limits on the number of new auto and homeowner policies their agents can write.

And a major Arizona auto insurer, Progressive Insurance, is getting out of the homeowner insurance business in Arizona after entering the market only about two years ago.

Spokesman Jim Kriznauski said State Farm imposed an undisclosed limit May 1 on the number of new auto and homeowner policies its Arizona agents can write.

State Farm is pulling back after posting a company-wide net loss of $5 billion in 2001, he said.

“We’re just trying to put the brakes on it and see what happens,” Kriznauski said.

Kriznauski said the action is needed so the company can assure it has enough reserves to pay claims on current policies.

“If we’re not responsible for keeping our financial security in place, then we’re not keeping our promises,” he said.

State Farm has no plans to drop existing policies and will continue servicing its current Arizona policies, Kriznauski said. The company insures nearly 600,000 motorists and more than 400,000 homes statewide.

The company is imposing similar restrictions in Louisiana and California, and is pulling out of the New Jersey auto-insurance market altogether because of spiraling claims costs there.

Prudential spokeswoman Laurita Warner said the company is limiting new business largely because it’s growing too fast, though rising claims costs are also a factor.

The policy pullbacks aren’t the only upheavals in what’s become a “hard market” amid heavy industry losses since last year.

So far this year, Arizona insurers have boosted homeowners’ insurance premium rates an average of 14.6 percent, following a 7.6 percent increase in 2001, according to the Arizona Department of Insurance.

Auto insurance rate increases filed through mid-April averaged 6.5 percent.

Insurers say the moves are needed to stem losses they blame on rising claims expenses, wider liability for costly mold-damage claims and fallout from the Sept. 11 attacks. Lower investment income also has eaten away at the industry’s bottom line.

The property and casualty insurance industry suffered a $7.9 billion net loss after taxes in 2001 – its first-ever net loss for a full year, according to the Insurance Services Office, an industry research organization.

Progressive stopped writing new homeowners’ policies May 3 and will leave the home-insurance markets in Arizona, Illinois, Maryland, Michigan and Texas by declining to renew policies at the end of their current terms, company spokeswoman Leslie Kolleda said.

Kolleda said the company had about 9,200 homeowner policyholders in all five states at the end of 2001, but the number in Arizona was not available.

Progressive issues auto policies through subsidiaries Progressive Paloverde, Progressive Casualty and Progressive Classic, and homeowner policies under Progressive Home Insurance Co.

Kolleda said the company started offering homeowner policies in March 2000 to package with auto policies, but it was unable to meet its goals and will refocus on auto coverage.

Insurers are generally free to drop coverages or otherwise change their market strategies as they see fit, said Erin Klug, spokeswoman for the Arizona Department of Insurance.

Klug said state regulators are monitoring the situation to make sure the limits don’t result in unfair discrimination against any class of consumers.