Problems with State Farm Insurance

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Hurricane Katrina caused a number of problems for State Farm Insurance and its policyholders.
Hurricane Katrina caused a number of problems for State Farm Insurance and its policyholders. (Image: Thinkstock/Comstock/Getty Images)

After sifting through court records, SEC and FBI records, state department of insurance investigations, consumer complaints and the sworn testimony of company whistleblowers, the trial lawyer group American Association for Justice (AAJ) ranks State Farm Insurance as the fourth worst insurance company in America. State Farm, however, though conceding to having made some mistakes due to overexposure in coastal areas, believes it has been the victim of an “orchestrated PR onslaught” by trial lawyers, designed to harm its reputation.

Hurricane Katrina

In 2005, Hurricane Katrina left in its wake almost 1,600 people dead, $135 billion in property damage and many angry State Farm policyholders, according to the AAJ. Most of the complaints homeowners lodged against State Farm involved the company’s interpretation of water damage, which was not covered by most policies. According to Fox 13 News, a whistleblower lawsuit filed against State Farm by damage assessors Cori and Kerri Rigsby claimed the insurance giant pressured them to alter findings on Katrina damage to reflect water damage rather than covered damage. According to State Farm, the company paid more than $90 million in 2007 on re-evaluated Katrina claims.

Withdrawal

Withdrawals by State Farm from Florida and Mississippi have caused problems for homeowners in those states. According to Pantagraph.com, State Farm Florida decided to terminate 125,000 homeowner policies in 2010 because state regulators would not agree to the 47.1 percent increase in premium rates the company requested. The state had agreed to rate increases of 33 percent in 2008 and 19.5 percent in 2009 but agreed to only a 14.8 percent increase for 2010. In 2008, State Farm also stopped underwriting new policies in Mississippi.

Public Relations

According to Pantograph.com, high-profile lawsuits such as the Rigsby sisters lawsuit undermine State Farm’s carefully crafted public image conveyed in its “Like a Good Neighbor” television ads. Plaintiffs filed legal actions claiming substandard handling of natural-disaster-related claims in California (regarding the Northridge earthquake in 1994); Oklahoma (for a series of deadly tornadoes in 1999) and Louisiana and Mississippi (over Hurricane Katrina in 2005). These heavily publicized lawsuits, combined with reports of large profits for the company ($5.5 billion in 2007) have added to public relations problems for the insurance giant.

Extreme Weather

Natural disasters in 2011, including an unprecedented series of tornadoes, may cause State Farm Inc. to show a loss for the year. The Joplin, Mo., tornado -- the deadliest storm in more than 60 years -- of May 2011 was only one of 1,314 tornadoes reported between the beginning of the year and May 24, according to the National Oceanic and Atmospheric Administration. State Farm announced that a historic outbreak of tornadoes in Alabama in 2011 cost the company $1.4 billion in claims.

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