Citizens Clearinghouse…and State Farm Agents

With the caveat that it’s far too early to speculate on its’ market impact, I will say that I’ve had more than one conversation with an independent agent convinced that Citizens Clearinghouse is nothing more than a competitive reprieve for State Farm agents.

I believe it to be just the opposite.

First, let’s be clear.  Whatever the ultimate impact of a Clearinghouse, it’s existence as a viable mechanism for channeling Citizens applications to the private market, is a ways off at this point. Even though the January 1, 2014 statutory deadline is in just three months, I believe it will be met.  SEMCI (Single Entry Multiple Company Interface) was, after all, beta tested by independent agents years ago.  Though its full impact won’t be known until January 1, 2015, the Clearinghouse will technically be up and running with at least one or two carriers by Super Bowl XLVIII.  My opinion, of course.

The belief that a Clearinghouse will save State Farm agents is grounded in the assumption that they are in need of saving–strapped by exclusive representation of a carrier that not only hasn’t written new residential property business in eight Florida counties since Hurricane Andrew but, also threatened a few years ago to pull out of Florida altogether.

The result has been that the only choice for State Farm agents has been Citizens; something independents think will change once the Clearinghouse is in full swing.

The Clearinghouse, they believe, will allow “all” agents sending policies to Citizens to receive Limited Appointments with any company willing to write any policy that, for comparable coverage, has a price not more than 15% higher than Citizens.  This means State Farm agents could receive appointments with agency carriers willing to write the residential property coverage State Farm has abandoned.

But, not so fast!

State Farm agents already have permission to accept Limited Service Agreements (LSA’s) with takeout carriers approved by the mother ship. This was only allowed so State Farm could protect its captive arrangement while deflecting criticism that its agents would always reject, on behalf of their customers, takeout offers from viable carriers.  At one time the total number of carriers authorized by State Farm to enter into LSA’s with its captive agent force was sixteen (16).

Will State Farm grant the privilege of appointments with all, some or none of the Clearinghouse carriers?  Nobody knows at this point.

Meanwhile State Farm agents have enjoyed unfettered access to Florida’s residual market featuring, at various times and degree’s, a guarantee of solvency, better coverage and a lower price. As Citizens price gradually increased under the 10% annual rate cap and its coverage waned, State Farm agents have continued to compete with independents via a sales pitch alleging “thinly capitalized” carriers are not as good as Citizens and a considerable auto policy discount available only when the homeowners policy was written in Citizens.

But, with a Clearinghouse, all that could change.

Remember, every policy submitted to Citizens receiving a Clearinghouse offer less than 15% higher than Citizens, is ineligible for Citizens coverage…period!

The fact that the policyholder loses an auto discount is no longer a factor.  And, neither are any of the other competitive tools previously available to State Farm agents.

Ask yourself, “why would a company that appoints independent agents appoint State Farm agents if it could find a way to avoid doing so and still write the policies deemed ineligible for Citizens under the rules of the Clearinghouse?”  I believe they would not appoint State Farm agents, “if” they can find any way to avoid doing so.

But, even if they can’t avoid offering a limited appointment to State Farm agents, State Farm agents have lost several competitive tools via the Clearinghouse, as follows:

1) they can no longer control the business they send to Citizens and best case must give it to an agency carrier that has appointments with thousands of independent agents it would rather appoint;

2) for those policies that are ineligible due to the 15% rule, they no longer have the advantage of a substantial auto discount to lock-in the business;

3) they no longer have the benefit of denigrating their competitors as thinly capitalized or financially “shaky”, and;

4) they can’t rely on the Clearinghouse carriers to offer AND maintain LSA’s with them or not to search for ways to transfer business to independents agents they’d rather do business with. 

5) their policies will be non-renewed when a private carrier makes an offer priced less than Citizens and, in essence, the policyholder will have to accept the offer which will have been made by an agency carrier.

So, for those lamenting that the Clearinghouse helps State Farm agents I disagree but, I also caution it’s too early to tell.

I must also say that I have many friends who are State Farm agents and I take no pleasure in voicing this conclusion.

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