Allstate seeks 9.3% hike in home rates

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Sacramento Bee (California)

SAN FRANCISCO, CA — As Allstate Insurance sees it, good corporate citizenship should be rewarded.

So for the benefit of investing $82 million in low-income homes and other programs in inner cities and rural communities in the past decade, the Illinois-based insurer wants its 1 million homeowner policyholders in California to pay higher premiums.

That’s a key argument Allstate officials made to insurance regulators Monday as they sought approval for a 9.3 percent rate boost, or an average increase of $79 a year for each customer.

“No matter which way you cut the data, Allstate always floats to the top. We were above the average investment (for other homeowners insurers),” Allstate actuary Steven Armstrong said during a hearing before an administrative law judge at the Department of Insurance‘s offices in downtown San Francisco.

Allstate officials did not offer specifics on where the company invested its funds.

Consumer advocates have challenged Allstate‘s proposal and urged regulators to slash premiums by 30 percent, saving policyholders an average of $326 a year on their annual bills. Critics argue the insurer is flush with money, earning $5 billion in profits in 2006 and buying back $3 billion worth of company stock during the first nine months of 2007.

Allstate, the state’s No. 3 homeowner insurer, is bucking moves by its major competitors in California. Market leader State Farm Mutual Automobile Insurance Co. has cut rates by 20 percent, and No. 2 Farmers Insurance Group has reduced its rates by 18 percent.

The companies attributed the cuts to a drop in the number of claims and insurance payouts.

Allstate has come under fire from Insurance Commissioner Steve Poizner, who last year questioned if the carrier was charging its customers too much. In an unprecedented move, the commissioner threatened to seek refunds if he finds the carrier’s premiums are excessive.

The review will come after Poizner acts on the rate increase proposal later this spring.

In recent years, critics have chided Allstate for its treatment of customers in hurricane-prone areas and accused the company of boosting profits and reserves by abandoning higher-risk markets.

Last July, Allstate stopped issuing new homeowner policies in California because of potential costly payouts from natural disasters. The company has made similar moves in hurricane-prone states on the Atlantic and Gulf coasts.

On Monday, regulators focused on Allstate‘s request to raise future premiums. The issue boils down to a numbers game — whether the company’s team of lawyers and actuaries can convince the state its financial calculations justify the higher prices.

Allstate officials argued the company should be able to profit from investing in communities often overlooked by traditional investors. Regulators offer some incentives to insurers to encourage investments in underserved communities.

From 1997 to 2004, Allstate said it ranked second among home insurers with $82.5 million in investments. That represents almost 30 percent of the amount all homeowner insurers invested in underserved communities during that period.

But Pamela Pressley, an attorney for the Foundation for Taxpayer and Consumer Rights, said the carrier’s analysis is flawed. She said Allstate invested only $15 million during the final three years of the survey period. Customers, she said, shouldn’t be asked to pay for the company’s goodwill.

Moreover, Pressley said, “they already are getting some return on investment.”

Allstate said raising yearly premiums from $848 to $927 would provide a financial buffer against risks, especially from huge payouts triggered from wildfires and earthquakes.

“If approved, this rate filing will ensure Allstate remains in an improved position to deal with the volatility of natural disasters in the California homeowners insurance market,” Allstate field vice president Robert H. Barge III
said in a statement Monday.

Consumer Watchdog
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