Insurance Commissioner Ordered Allstate to Lower Rates by 15.9% Under Prop. 103
Santa Monica, CA – Consumer advocates argue today before a San Francisco Superior Court that the $250 million auto insurance rate decrease ordered by Insurance Commissioner Poizner last month for Allstate customers must go into effect immediately. Allstate is resisting the 15.9% rate decrease ordered under the provisions of Proposition 103 that was to go into effect on Monday, April 14.
If Allstate’s request for a stay of the rate decrease order is denied, the reduction will go into effect no later than April 28, for an average savings of $124 per car. If the stay is granted, Allstate can continue to overcharge its nearly 2 million customers at the rate of approximately $670,334 a day.
The petition is a last-ditch attempt to avoid complying with provisions of the voter-approved insurance reform law, Proposition 103. Poizner’s rate decrease order is the first issued under amended Proposition 103 rules that prohibit excessive profits, which took effect in April 2007.
“Allstate will illegally collect over $650,000 a day in its customers’ money if the rate decrease is not implemented on schedule,” said Consumer Watchdog’s litigation director Pamela Pressley. “These rate reductions came about because of regulations that limit industry excesses and Allstate’s customers deserve their rate decreases now, not two years from now.”
The Commissioner’s March 14 order followed the recommendation of an administrative law judge that heard the case in November 2007. Allstate originally requested no change in its auto rates when it filed a new rate structure with the Department of Insurance in 2006, but a hearing was ordered by the Commissioner to justify those rates. The nonprofit Consumer Watchdog (formerly the Foundation for Taxpayer and Consumer Rights) intervened to challenge the existing rate as excessive, arguing that Allstate’s rates should be lowered by 19.4% according to the rules of Proposition 103, the 1988 insurance reform initiative. The Commissioner determined that a 15.9% decrease was required.
Allstate’s modified request for a much smaller 8.4% decrease after the initiation of the rate hearing was based upon contradictory tales of Allstate’s alleged financial distress in California, while at the same time, the company was boasting of record profits to Wall Street. Allstate’s net income for 2006 alone was approximately $5 billion and total shareholder return was 590% between 1994 and 2006.
Consumer Watchdog has also challenged an unjustified homeowners’ insurance rate hike requested by Allstate. If successful, the challenge will save Allstate’s homeowner policyholders approximately $350 million a year.
"Proposition 103 requires that insurance companies prove that rates are high enough to pay claims, but not excessive. It does not permit insurance companies the right to overcharge customers to maintain mega-profitability, and Allstate’s challenge will fail on those grounds,” said Pressley.
The Allstate auto insurance savings were achieved under amended regulations issued by the Department of Insurance last year that revised guidelines for profitability and allowable expenses under the rules of Proposition 103. Prop 103 requires insurance companies to open their books and submit to public hearings to justify that rates are adequate without being excessive. Consumers may intervene in or initiate proceedings to challenge any rate that is unfair or excessive.
Using Prop 103, Consumer Watchdog has helped Californians save more than $800 million dollars by challenging other auto, homeowners, and medical malpractice insurance rate proposals since 2003. Click here to view a full list of previous savings.
Consumer Watchdog, formerly The Foundation for Taxpayer and Consumer Rights, is a nonprofit and nonpartisan organization.