Allstate Seeks Big Boost in Premiums

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The Los Angeles Times

Allstate Insurance Co. on Friday filed a request to raise premiums for California homeowners 12.2% — startling consumer groups and state Insurance Commissioner John Garamendi, who in June had ordered the company to justify its rates.

Whereas rivals said Friday that they planned to cut premiums, Allstate said it needed to charge more to cover the escalating threat from natural catastrophes.

“Our top priority is to protect our policyholders by ensuring we have the resources to be there for the hundreds of thousands of Californians who look to us for homeowners insurance protection,” Robert H. Barge III, a vice president for Allstate‘s California region, said in a statement.

In June, Garamendi ordered Allstate, State Farm, Farmers and Safeco to justify their homeowner rates, saying he would order cuts if the charges were found to be too high.

The state Insurance Department said the four companies paid out in claims less than 50 cents of each dollar in premiums taken in last year.

Allstate, which turned a profit of $1.77 billion last year, said the review it undertook in the wake of Garamendi’s action determined that its rates were too low.

The cost of repairing property has soared, and insurance-rating firms are demanding that insurers keep more capital available to cover the cost of claims, said Rich Halberg, a spokesman for Northbrook, Ill.-based Allstate.

The company also maintains that the recent trend of drier, warmer summers leaves the state susceptible to more frequent and intense wildfires.

Allstate had 14.2% of the California homeowners market last year, trailing State Farm with 22.2% and Farmers with 16.6%.

Farmers spokesman Jeffrey C. Beyer said the Los Angeles-based insurer has proposed cutting premiums in California by 16%. He said the company was negotiating with the Insurance Department and expected to wind up with a reduction of “at least as much as we have proposed.”

State Farm spokesman Bill Sirola said his Bloomington, Ill.-based company was also in talks with the department about a rate cut. He wouldn’t elaborate.

Garamendi said he would seek to schedule a hearing on Allstate‘s rate increase request as soon as October but expressed surprise at the company’s filing, especially considering that other insurers have given “clear indications” of pending rate cuts.

“Based on the extraordinarily low percentage of the premium dollar that goes to pay claims, it seems inappropriate for Allstate to be asking for an increase,” he said.

Consumer activist Doug Heller called Allstate‘s request an outrageous ploy in its wrangling with regulators. “In an environment where rates will come down for homeowners, a company that makes these rate hike threats will probably be rebuffed by its customers,” he said.

Allstate spokesman Halberg said the company’s top priority “is setting rates so we’ll have enough capability to be there for policyholders if there is another catastrophe.”

If the state suffered two disasters on the scale of the 1994 Northridge earthquake in a single year, Halberg said, the California Earthquake Authority would run out of money, forcing Allstate and other insurers who offer coverage through the authority to make up the shortfall.
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