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SACRAMENTO, Calif. (BestWire) – Allstate Corp. (NYSE:ALL) said it has won approval to raise its homeowners rates by 18.5% in California.

Allstate, the third-largest homeowners writer in the state, had originally asked to raise rates by 22.3%, but the insurance department only allowed the 18.5% increase.

Allstate will also raise its personal automobile rates by 8.9%. It had originally applied to raised auto rates by 20.1%.

“We’ve been definitely paying out more than we’ve been taking in,” Allstate spokeswoman Lisa Wannamaker said.

For several years, loss costs have been rising, she said. However, it’s the first homeowners rate hike since a 6% increase in 1994, she said. Fraud, building materials and construction costs, and water damage related to mold are driving the increases, she said.

The rate hike follows last month’s announcement that State Farm Group, the largest homeowners writer in California, would stop writing new business (BestWire, April 25, 2002).

While Allstate has no plans to leave California, State Farm‘s exit “is a reflection of how complex and tough the market is right now in California,” Wannamaker said.

In addition to raising rates, Allstate also is focusing on tighter underwriting, she said. For instance, mold-related claims have been capped at $5,000, she said.

Costs also have been rising for auto, Wannamaker said. The company received a 6.2% increase for auto last year, she said. In January, State Farm said it would seek another 6.9% increase in homeowners rates. It received a 6.9% increase last year.

Also, Interinsurance Exchange of Auto Club, the insurance arm of the Automobile Club of Southern California, has filed a request to raise rates. Interinsurance Exchange is seeking a 6.6% rate hike, according to the California Department of Insurance (BestWire, Jan. 23, 2002).

Zurich/Farmers Group, the second-largest writer of homeowners insurance in the state, has been able to raise its rates by 25.7% from January 2000 to January 2002 by requesting several increments of 6.9% or 5%. Zurich/Farmers has requested another 6.9% this year, meaning homeowners would pay a total of 32.6% more for homeowners insurance in 2002 compared with two years ago.

Earlier this year, 21st Century Insurance Group (NYSE:TW) said it would stop writing homeowners insurance in California altogether (BestWire, Jan. 7, 2001). It had a 6.9% increase approved in 2001, and it had applied for a second increase of 28% later in the year, according to the Foundation for Taxpayers & Consumer Rights.

State Farm had a 22.1% share of homeowners multiperil coverage in California, according to A.M. Best Co. State/Line product information for 2000. Zurich/Farmers held a 19.6% market share, while Allstate had a 15.4% market share.

Allstate Insurance Co., Interinsurance Exchange of Auto Club and 21st Century Insurance Co. all are rated A+ (Superior) by A.M. Best Co. State Farm Group is rated A++ (Superior) by A.M. Best, but a subsidiary, State Farm General Insurance Co., which predominantly writes California business, recently was downgraded to B+ (Very Good).

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