The insurer seeks a hike in home rates. Some say it wants to exit the state.

The Los Angeles Times

SACRAMENTO, CA — Allstate Corp., the third-largest insurer of homes in California, may soon cut back on its policies or stop writing them in the state altogether, insurance experts say.

In the last year, the Northbrook, Ill., company and other insurers have ceased writing new homeowners policies in all or parts of a dozen coastal states that are regularly hit by hurricanes.

California may be next, say insurance experts and lobbyists — including former Insurance Commissioner John Garamendi, who is now state’s lieutenant governor.

Allstate declined to comment on its plans.

Although most of the state’s major home insurers are cutting rates, Allstate, citing California’s potential for natural disasters, is seeking a 12% rate increase from its policyholders. It insures about 1 in 7 homeowners in California.

“Their strategy is an exit strategy,” said Garamendi, a Democrat who oversaw Allstate rates for the last four years as insurance chief. “They’ve said they want to get out of the homeowners business in a market that is competitive, healthy and profitable.” He called such a move “stupid.”

Allstate says it needs the rate increase to build its reserves to pay future claims arising from the wildfires and earthquakes that plague the Golden State.

“The costs of protecting against losses have gone up dramatically,” said Rich Halberg, a California spokesman for Allstate. “They are costs that we believe should be reflected in rates.”

Asked whether there were plans for a moratorium on the sale of new homeowners policies, he said, “We are open for homeowners in California who meet our requirements.”

He added, “We are constantly managing our level of risk’. We have a broad array of tools.”

Mike Siemienas, a national spokesman for Allstate, said the company would not discuss its plans for California. “We don’t speculate on what future actions we’re going to take.”

The state’s new insurance commissioner, Steve Poizner, said he was tracking Allstate‘s moves in other parts of the country and analyzing its California rate proposal.

Halberg said Allstate was not worried that higher rates would drive away customers. “We believe we’ll be competitive in the market — even with this increase,” he said.

The company submitted its request for a rate increase in response to a legal order from Garamendi to it and three other major insurers to open their books and prove they were not overcharging policyholders.

Garamendi contended that holders of policies issued by Allstate, State Farm Mutual Automobile Insurance Co., Farmers Group Inc. and Safeco Corp. deserved rate cuts to offset large profits for the insurers in 2004 and 2005. In those years, losses on policies were more than a third lower than the average for the last decade.

Three of the companies agreed to reduce premiums, including State Farm, the biggest home insurer in the state, which cut rates about 20%, and No. 2 Farmers, which sought an 18% cut. State Farm and Farmers collectively cover 2.7 million homes.

Allstate, however, asked for a double-digit hike. The request is being scrutinized in hearings at the Department of Insurance that began Wednesday and may run through summer.

Some consumer advocates see the Allstate rate-hike request as the first major test for Poizner, a Republican who says he is “committed to driving down the cost of insurance for everyone.”

Poizner said he wouldn’t be cowed. “I want to make it crystal clear that I absolutely will not permit excessive rates to be charged by any company under any circumstances,” he said.

Poizner said he was “a bit mystified” that Allstate wanted to raise premiums when “three of the top five homeowners insurers in California have reduced rates by approximately 20%.”

Over the last year, 22 companies, representing 54% of the California homeowners market, got approval to lower rates.

In recent weeks the company’s intentions in California have been a hot topic among Allstate agents, several of them said this week. They said there was much speculation that the company might act as soon as April.

Some Allstate customers say they’re baffled by the request for a rate increase when the insurance industry, including Allstate, is posting its best financial results in a decade.

“To me it doesn’t make any sense to raise rates. I could understand it if they were losing lots of money and had lots of claims,” said Brian Jochum, 42, an entertainment company executive and an Allstate policyholder in Woodland Hills.

Allstate‘s request for a rate increase sent a message that it’s time to talk to another insurer, said Guy Nemiro, 55, a computer systems sales representative from the Hancock Park neighborhood of Los Angeles. “The nice thing about a competitive market is that I as a consumer can shop around,” he said.

Nationally, Allstate is enjoying strong growth. Allstate is the country’s second-largest home insurer, covering 1 in every 8 residences.

The company’s net income jumped 17% in the fourth quarter of last year, compared with the same period in 2005. Its losses from catastrophes dropped 57.5% over the same period.

Allstate said it needed to reduce its exposure to risk, build reserves and pay for reinsurance ‘ a type of insurance purchased by insurers to provide a cushion against losses.

Allstate‘s Halberg said the company was no longer writing new policies in all or parts of Florida, Connecticut, Delaware, New Jersey, Alabama, Georgia, Louisiana, Maryland, Mississippi, New York, North Carolina, South Carolina, Texas and Virginia.

“Allstate is sort of the Darth Vader” of homeowners insurers,” said J. Robert Hunter of the Consumer Federation of America in Washington, referring to the “Star Wars” villain.

“From Maine to Texas, they’ve been on sort of a rampage,” he said. “California is not a surprise because they seem to be doing it everywhere they could suffer a loss.”

Home coverage:

2005 California market share for property and casualty insurance

State Farm: 22.1%

Farmers: 16.6%

Allstate: 14.1%

California State Auto Group 6.0%

Other 41.2%

Source: National Assn. of Insurance Commissioners
—————-
Contact the author at [email protected]