Despite Staggering Profits, Allstate Continues to Battle Regulatory Requirement to Lower Its Auto Insurance Rates More Than $300 Million Per Year
**Public Hearing Begins Today in San Francisco**
San Francisco, CA — Consumer advocates will argue that Allstate must lower its auto insurance rates by 18.8% (an average $150 per car) under new rules that limit excessive profits by the industry in a Department of Insurance hearing that began today in San Francisco, CA, and is expected to last three to five days. Allstate, the nation’s second largest auto insurer, seeks five separate exemptions to the rules that determine auto insurance rates, despite the company’s above-average profitability and shareholder return, In the Matter of the Rate Application of Allstate Insurance Company and Allstate Indemnity Company, File No. PA-2007-00004.
The Foundation for Taxpayer and Consumer Rights (FTCR) has determined that Allstate is overcharging drivers over $300 million per year. The non-profit group, which has challenged Allstate‘s auto insurance rate plan, will testify this week that Allstate should be lowering its rates $300 million per year in accordance with state regulations. FTCR has also challenged Allstate¿s proposed 12% increase in homeowners’ premiums; that issue will be heard at a separate hearing in January 2008.
“Allstate boasts of record profits to Wall Street, then comes to California claiming it’s not making enough money in order to charge its policyholders higher premiums. Californians are required to buy auto insurance, so companies must be reined in when their rates would gouge their customers. Regulators can’t let Allstate bully its way to higher profits,” said FTCR attorney Todd Foreman.
Allstate Threatens to Leave Auto Market, Degrade Claims Handling in State
In the written testimony of a hired expert submitted for the current hearing, Allstate issued a thinly veiled threat to insurance regulators, suggesting that a company forced to abide by rules limiting excessive profit might:
“reduce the quality of its services to a level lower than what it would have otherwise been, by having fewer offices in the state, advertising less vigorously, or reducing the quality of its claims processing. Ultimately, a company might choose to leave the state entirely if long-term prospects are sufficiently poor.”
In an early victory for consumers late last week, Allstate withdrew its request to charge drivers an additional $15.5 million in premiums based upon its claims of “improving the customer experience.” The allegedly improved service efforts included the mailing of thank you cards and the distribution of “phone etiquette tips” to company employees. In fact, Allstate‘s own internal poll showed that the company has consistently fallen below the industry average for customer satisfaction since at least the year 2000.
“It was absurd that Allstate would ask California consumers to pay millions extra for alleged improvements to customer service. We called their bluff, and Allstate obviously realized that this argument had no chance in Court, so they dropped the claim at the eleventh hour,” stated Daniel Y. Zohar, FTCR’s lead outside counsel in the rate challenge who is with the Los Angeles-based Zohar Law Firm, P.C. “Proposition 103 requires that insurance companies prove that rates are high enough to pay claims, but not excessive. It does not permit insurance companies the right to overcharge customers to maintain mega-profitability. Yet all that Allstate is doing here is trying to reward Wall Street at the expense of Californians.”
Shareholders Hear One Story, Ratepayers Another
Allstate will also argue that it must be allowed to charge more than allowed by the regulatory rate formula because the required 18.8% cut would cause the company to suffer deep financial hardship. However, the company’s statements to shareholders tell a different story.
Allstate‘s net income for 2006 alone was approximately $5 billion and total shareholder return was 590% between 1994 and 2006. The 2006 Allstate Corporation Annual Statement reports that Allstate common stock consistently outperformed both the S&P 500 Index and the S&P Property/Casualty Index (an index that measures stock performance at companies with similar risk to Allstate).
“Allstate‘s own reports to shareholders show investors are getting more than their money’s worth and California regulators can’t conclude otherwise,” said Foreman.
This hearing is the first to be conducted under new regulations issued by the Department of Insurance last year that revised guidelines for profitability under the rules of Proposition 103. Prop 103 requires insurance companies to open their books and submit to public hearings to justify that rates are adequate without being excessive.
Using Prop 103, FTCR has helped Californians save more than $800 million dollars by challenging several other companies’ auto, homeowners, and medical malpractice insurance rate proposals since 2003. Click here to view a full list of these savings.
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The Foundation for Taxpayer & Consumer Rights is California’s leading non-profit and non-partisan consumer watchdog group. For more information please visit our website at: www.ConsumerWatchdog.org