Home insurance risk described as too great
The San Diego Union-Tribune
SAN DIEGO, CA — Allstate said Thursday it will cease accepting new home insurance customers in California as of July 1.
The insurer said it is making the move to protect its ability to continue serving its 900,000 state policyholders, who Allstate said will not be affected by the suspension on new customers.
Allstate, the state’s third-largest home insurance provider, said it made the move after paying billions of dollars in claims around the country in recent years following a series of costly natural disasters.
“What we are doing is trying to manage risk, not just in California but around the country,” said Pete Moraga, an Allstate spokesman. “California is a very catastrophe-prone state with earthquakes, fires and in some cases, tornadoes. The costs of reconstruction keep going up, and homes are being built in catastrophe-prone areas.”
After July 1, Allstate said, its network of insurance agents will offer customers home insurance from another company.
The insurer denied that closing the door to new customers had anything to do with its pending requests for a premium increase.
But Insurance Commissioner Steve Poizner said Allstate‘s decision was “short-sighted,” and he issued an order for Allstate to demonstrate that it was not overcharging current customers.
Poizner said that while Allstate was seeking a rate increase, other companies were cutting their premiums. The commissioner said those cuts would reduce home insurance premiums for customers by a total of $1 billion. Allstate is requesting a 12 percent increase in its premiums.
“Allstate‘s decision not to accept new business does not entitle them to charge excessive rates,” Poizner said in a statement.
He added that he expected “no shortage” of companies willing to serve the California market.
California is the fifth state in which Allstate is closing the door to new home insurance customers, following similar suspensions in Florida, Connecticut, Delaware and New Jersey, as well as counties in other states.
Carmen Balber, an advocate with the Foundation for Taxpayer and Consumer Rights, said that rather than a rate increase, “consumers should get a 40 decrease in rate from (Allstate).”
Balber said Allstate paid out 33 cents in claims on every dollar in premiums it collected during 2005.
“Allstate is clearly making money in this state,” Balber said. “If the state doesn’t want to lower rates for them, then we say, ‘Hasta la vista, Allstate.’ And don’t expect California to welcome them back when they decide to come back.”
Moraga, the Allstate spokesman, said the 33 cents per dollar paid for claims was misleading because it did not include other costs of doing business.
Moraga said the spate of hurricanes culminating in Katrina led Allstate to pay $5.7 billion in claims for storm-related damage. In California, he added, the 2003 Cedar fire and related blazes led to the payment of $370 million in claims.
“And we are going into a period when all the experts are telling us we will see a strong cycle of mega-catastrophes,” Moraga said. “The success of an insurance company is not just selling policies. It is managing risk.”
