Last week, Allstate was ordered by the Insurance Commissioner to reduce its homeowners insurance rates by approximately $242 million – an average $250 savings for each Allstate policyholder. The reduction followed on the heels of another quarter-billion rate reduction, that time for Allstate’s auto customers, back in March.
Consumer Watchdog intervened in both rate hike requests under the rules of Proposition 103, which allow consumers to challenge unfair and excessive insurance rates. Our legal team — Pam Pressley and Todd Foreman, and outside counsel Dan Zohar — were instrumental in achieving these huge savings for consumers.
(Click here to see a graph of all the rate savings Consumer Watchdog has helped obtain for consumers since 2003.)
(Click here to download a radio interview with Dan Zohar about the case, Allstate’s profits, and why the request was rejected.)
Allstate’s net income for 2006 alone was approximately $5 billion. Ironically, the company claimed it needed a rate increase because it would
suffer extreme financial hardship if it had to follow the same rules as other insurers. The homeowners increase sought by Allstate was based in
part on its claim that it should be allowed to build a
higher profit margin into its rates than the 10.17% allowed under California regulations.
UPDATE 2:28 PM: I forgot that I wanted to talk about those profit numbers after an editorial in yesterday’s San Francisco Chronicle. The paper acknowledges that:
There’s no reason to believe that Poizner was making a bad decision when it comes to cutting Allstate’s rates.
But goes on to say:
Insurance companies are
unpopular for mostly good reasons – but it won’t do any good to cut
their ability to make a profit to the point where they decide it’s time
to move away from offering insurance here. (It’s important to note that
Allstate, for instance, closed its doors to new customers in the
homeowners’ insurance market last year.)
I think it’s important to note that both the administrative law judge that heard the arguments in the rate case and Commissioner Poizner agreed: Allstate will get along fine with the 10.17% rate of return allowed under California’s regulations.