Quarter Billion Price Cut for Allstate Customers in California

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Here’s good financial news for folks at a time when it seems like the economic sky is falling: Allstate has to lower its auto insurance rates by about $250 million in California, in order to comply with the 1988 insurance reform initiative known as Prop 103.   Here’s the LA Times on the rate cut:

California Insurance Commissioner Steve Poizner has ordered Allstate
Corp., which covers about one out of every 10 insured cars in the
state, to cut its automobile rates by 15.9% — an average savings of
$124 per car, according to state regulators..

The order, which came at the close of a lengthy proceeding before an
administrative law judge, was more than twice what the Northbrook,
Ill., company wanted to grant its policyholders. Allstate is
considering whether to appeal the rate cut order.

"California’s consumers deserve a competitive marketplace in which
to shop around for the best rates that meet their needs," Poizner said
in a statement. "This reduction reaffirms my commitment to ensuring
that excessive rates are not charged. At the same time, the rate
reduction is fair and reasonable for the company."

Allstate’s reduction is the latest in a series of rate cuts in
California by dozens of automobile insurance companies since the summer
of 2006. After losing a protracted court challenge, the industry began
complying with regulators’ insistence that they primarily base their
premium-setting formulas on a person’s driving record, number of years
behind the wheel and total miles driven annually.

In 2006, as part of complying with the new driving record rules, Allstate filed a plan to keep their rates unchanged.  The Department of Insurance didn’t accept that and wanted to see rate decreases and we intervened to make sure rates were substantially slashed, as Allstate’s rates were exceedingly high compared to the small amount they were paying out in claims.  We thought Allstate’s rates should be cut by 19.4%. 

Last November, we argued the case before a Department of Insurance judge who settled on the 15.9% decrease that Commissioner Poizner.  Download the judge’s decision here.

A key takeaway from this victory is that Allstate’s rates had to come down so drastically because the company was required to follow the stringent rules set forth in, what are known to insiders as, the "prior approval" regulations of Proposition 103.  As we explain in our press release:

The Allstate auto insurance savings announced today were achieved under
amended regulations issued by the Department of Insurance last year
that revised guidelines for profitability and allowable expenses 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.

The rules don’t only apply to Allstate, of course.  With this decision by Commissioner Poizner on their desks, I expect that other auto insurers will not waste so much time and money fighting to evade the rules and will instead propose
lowering premiums out of the gate when they submit rate plans that are scheduled this summer.

If I’m right, this quarter billion savings for Allstate customers is just the beginning.            

Consumer Watchdog
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