State Farm, Florida's largest private home insurer, keeps shrinking as state-backed Citizens Property Insurance keeps growing.

Coincidence? Not entirely: A 2008 state law allows companies like State Farm to continue giving multiple-policy discounts to customers, even if the company only provides automobile insurance coverage and drops their homeowners' coverage. The catch? The homeowners' policy has to go to Citizens, not another private insurer.
While that law may help improve State Farm's financial picture, critics say it's a bad deal for Floridians, who absorb costs for Citizens, Florida's insurer of last resort. Allowing State Farm to push policyholders to Citizens shifts the costs — and the liability for major-storm coverage — to the state's property insurance policyholders who pay fees to offset the insurer's deficits.

That's why some critics are calling for the 2008 law to be repealed as part of an effort to shrink Citizens, which has nearly 1.5 million policies. "That's among five little tweaks that would really help fix Citizens," said John Rollins, a new Citizens board member.

He said the law took away a key disincentive for private insurers to dump a homeowners' policy: The customer may also drop the more sought-after automobile insurance policy.

Insurance experts say the 2008 law is a factor in why 83 percent of the 99,500 former State Farm policies that Citizens currently has come from State Farm within the past three years.

State Farm spokesman Chris Neal said Citizens' rates — and a law capping annual increases by 10 percent — has far more to do with its size.

Peggy Waite, a State Farm agent in Hollywood, said her customers ask themselves: " 'Would I want to be with Citizens, which is backed by the state, or some company that has only been around for a few years?' … It's a no-brainer."

Critics acknowledge that several other private insurers have started using the discount, but State Farm is making more of an impact because it's the largest private insurer by premiums collected, the second largest by policyholder count and it has dropped a lot of policies. State Farm received approval in 2008 to shed 50,000 policies. It considered leaving Florida's property insurance market but struck a deal with regulators in late 2009 to stay but drop 125,000 customers.

The discount has become "a weapon" for State Farm agents struggling to stay in business as the company shrinks, said Jeff Grady, president of the Florida Association of Independent Insurance Agents, which represents agents that sell policies for multiple private insurers.

By contrast, agents for some national companies can only sell policies primarily or exclusively for one company, Sharon Binnun, Citizens' chief financial officer, told lawmakers in a recent presentation on why the insurer is growing.

As part of the 2009 deal, State Farm changed its rules to allow its agents to move the 125,000 policies to some private insurers.

Neal said the 2008 law shielded customers dropped by State Farm from a double whammy of losing coverage and getting an auto insurance rate hike.