Allstate Insurance Corp., the state’s third-largest home insurer, was ordered yesterday to slash its homeowner’s rates by 28.5 percent in one of the deepest rate cuts ever required by the state Department of Insurance.
The rate change, totaling $255 million, will lead to an average annual reduction of $243 for 850,000 homeowners throughout California. The revised policies will average about $600 per year, the Insurance Department estimated.
“A quarter-billion dollars is a significant decrease,” said Carmen Balber, spokeswoman for Consumer Watchdog, a consumers’ rights organization that had pushed for a 30 percent rate cut. “It’s a huge victory for consumers at a time when the price of everything else in this economy is going up.”
Although Allstate stopped issuing new homeowner’s policies in California in 2007, citing concerns about the state’s wildfires and earthquakes, it still provides coverage under previously issued policies.
Yesterday’s decision follows a 15.9 percent, $250 million rate reduction for Allstate auto policies in April, lowering car insurance policyholders annual payments by an average of $124.
The two rate reductions are by far the largest that have been ordered under Insurance Commissioner Steve Poizner, who has described Allstate’s rates as “excessive.”
“In today’s sputtering economic environment, people need all the help they can get just to pay the bills,” Poizner said yesterday. “That’s why I am pleased to order this tremendous rate cut.”
Allstate spokesman Peter DeMarco said that although the company was “disappointed” with Poizner’s order, “we respect the authority of the (Insurance) Department and will comply.”
DeMarco said the company is reviewing the order in detail and communicating with the Insurance Department about the process of adjusting its rates.
Allstate had been fighting the rate cut for the past two years, ever since former Insurance Commissioner John Garamendi required four of the state’s largest insurers – State Farm, Farmers, Allstate and Safeco – to show cause why their rates should be so high.
Garamendi said the state’s largest insurers paid out 42 cents in claims for every $1 they took in premiums during 2004 and 2005. He said that historically, insurers typically have paid out 70 cents on the dollar or more.
State Farm, Farmers and Safeco subsequently reduced their rates by 18 percent to 22 percent, but Allstate asked for a 9.8 percent increase. Its request for higher rates ended with yesterday’s decision by Poizner.
Coincidentally, Poizner’s decision was announced a day after the American Association for Justice, an organization of trial lawyers, named Allstate as the nation’s worst insurance company for consumers, based on such criteria as its legal tactics, response to customer claims and the ratio between premiums and the amount of money paid on claims.
“While Allstate publicly touts its ‘good hands’ approach, it has instead privately instructed its agents to employ a boxing-gloves strategy against its policyholders,” said Jon Haber, chief executive of the lawyers group. “Allstate ducks, bobs and weaves to avoid paying claims to increase its profits.”
Allstate spokesman Rich Halberg said he was “not surprised that we’re targeted by trial lawyers and personal-injury attorneys, since we’re at the forefront of trying to reduce unreasonable claims made by attorneys during litigation.”
Halberg said that even if the attorneys do not like Allstate, “the numbers show that our customers do. They renew their policies at high percentages, and we attract millions of new customers every year.”
But Haber said Poizner’s decision yesterday “validates our ranking.”
Dean Calbreath: (619) 293-1891; [email protected]
RECENT RATE CUTS
Since taking office in January 2007, California Insurance Commissioner Steve Poizner has approved $1.7 billion in rate cuts. Here are the top six reductions in auto and homeowners’ insurance:
INSURER | TYPE OF INSURANCE | RATE REDUCTION PCT.
Allstate Home $255 million 28.5%
Allstate Auto $250 million 15.9%
AAA Auto $101 million 6.5%
GEICO Auto $66 million 10.8%
Mercury Renters, home, auto $61 million Varying
Fireman’s Home $30 million 17.9%