SACRAMENTO, Calif. (BestWire) – Allstate Corp. agreed to pay $3 million to settle its dispute with the California Department of Insurance over allegations that the company made improper use of credit information on personal automobile policies in the state, the company confirmed.
Under terms of the agreement, Allstate (NYSE:ALL) must cease using credit-based insurance scoring in determining the size of a new policyholder’s down payment. The settlement, which is set to take effect March 31, follows recommendations set forth last month by Chief Administrative Law Judge Andrea L. Biren. The insurance department, which is to receive the proceeds of the company’s $3 million fine, accepted the settlement the week of March 1.
In question were company practices between March 2001 and July 2003 of requiring higher premium down payments, as much as 100%, on new policies; requiring a seven-day waiting period for a new policy to become effective; and failing to offer Allstate Indemnity Co. policies to new policyholders. The department alleged that all of the practices were designed to circumvent state law prohibiting the use of credit information in underwriting or rate-setting for auto policies.
The company argued before Biren that the practices were legal, and it denied allegations the insurer used credit-based scoring to either select policyholders of set rates. The settlement doesn’t require Allstate to admit wrongdoing.
In 1988, California voters passed Proposition 103, outlawing the use of both credit history and territorial ratings on the part of insurers that write personal auto policies. The initiative’s sponsor, the Santa Monica-based Foundation for Taxpayer and Consumer Rights, has argued that consideration of a policyholder’s credit history unfairly discriminates against lower-income and minority residents, which Allstate vehemently denied.
“Allegations of unfair discrimination with regard to our use of credit information to determine down-payment amounts and payment plans for new auto insurance customers are not only completely false, they are offensive,” the company said in a statement. “Allstate‘s use of insurance scores do not consider ethnicity, nationality, gender or income. No credible studies have shown any disproportionate impact of credit-based insurance scoring on minority groups.
However, most people benefit from insurance scoring because most consumers manage their debt well and therefore have good credit scores.”
Last May, Allstate said it would voluntarily cease using insurance scoring in underwriting of homeowners policies in the state. The announcement came amid legislative debate over a bill sponsored by state Sen. Martha Escutia that would have banned the use of credit information “in whole or in part,” for all homeowners insurers, thus making California the first state to ban the practice for all personal-lines insurance. Despite passing the Senate resoundingly, the bill failed to carry in the state Assembly.
According to A.M. Best Co. data for 2002, Allstate was the third-largest writer of private passenger auto policies in California, with a 10.5% market share, and the third-largest writer of homeowners multiperil policies, with a 14.4% market share, based on direct premiums written in 2002.
A.M. Best Co. rates the financial strength of companies in the Allstate Insurance Group as A+ (Superior).