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TALLAHASSEE (CBS4) ― Florida's largest private home insurer, State Farm, says it'll drop about 50-thousand homeowner's policies next year in what it considers risky areas along the coast.

Most of the homes and condos that will lose their coverage are within a few miles of the coast, but some are farther inland, State Farm spokesman Justin Glover said.

Glover said the move was "a very tough decision for us to make, but it is part of our decision to remain in this market." State Farm filed paperwork Thursday with the state Office of Insurance Regulation announcing its intention to drop the policies.

Glover emphasized that no policy holders will lose coverage during the current hurricane season, which runs through November. Customers will start to be dropped after Jan. 1, 2008, when their policies come up for renewal.

The company also said in the filings that it intends to cancel an unspecified number of wind-only policies. Those are policies the company has in certain parts of the state where homeowners have most types of damage, such as fire or theft, covered by another insurance company and State Farm covers wind damage.

State insurance regulators said they would take a hard look at State Farm's rates in light of its intention to reduce its exposure. With less risk, rates might have to come down, the state's top insurance official said.

"If State Farm reduces exposure in Florida through the non-renewal of property insurance policies, the Office of Insurance Regulation will revisit State Farm's rates to ensure they are not excessive," Florida Insurance Commissioner Kevin McCarty said.

Property insurance premiums skyrocketed in the months after the busy hurricane seasons of 2004 and 2005, when the industry paid out nearly $40 billion in claims. That angered many Floridians and forced a political response which included a broad plan to try to force premiums lower in many cases. Insurance laws were changed in January and went into effect last month, but many Floridians have yet to see the results.

State Farm filed for a rate reduction of 7 percent on average statewide as a result of the new law.

Many insurance industry officials have long said that if rates are too low to cover expected losses and the political climate doesn't allow for higher rates, they would have to consider dropping policies.

Glover wouldn't say directly if or how lower rates factored into the decision to drop the policies.

"The decision has to do with reducing our exposure," he said. "Sometimes you have to reduce exposure to be able to pay claims."

Despite repeated warnings by insurance officials that some companies still don't consider Florida's coastlines a profitable place to carry risk, reaction to State Farm's decision Thursday was one of disappointment, and in some cases surprise.

"These actions are inconsistent with State Farm's previous statements outlining their underwriting intentions," McCarty said in a statement released by his office. "The office is in the process of reviewing these filings to ensure they are consistent with Florida law."

Florida Chief Financial Officer Alex Sink said it was "disappointing that the largest private insurer -- and one of the more respected companies -- would have such disregard for long-standing customer relationships."

State Farm has more than 1 million policies in Florida, so the number of homeowners whose policies won't be renewed is a small percentage of the company's business. State Farm will still be the state's largest private home insurer by far after the move.

But the move adds to the shortage of property insurance options for coastal homeowners. State Farm was one of the few private companies writing policies in the high-wind areas closest to the coast.

Many of the dropped customers will have to turn to state-backed Citizens Property Insurance Corp., which is the largest overall hurricane insurance provider in the state.

Many lawmakers, particularly Republicans, have lamented Citizens' growth -- because the bigger it gets the more the state is ultimately the main insurer in Florida rather than private companies.

That's "a very disturbing trend," said Sen. Bill Posey, R-Rockledge. "How do we ever get out of Citizens?"

Posey said that ultimately buildings have to be made stronger to make private insurance an attractive business along the beaches.

"If you want to beat this problem, you have to reduce the risk of loss," Posey said. "The only way to reduce the risk is to storm-proof properties."

(© 2007 CBS Broadcasting Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report.)