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Allstate proposes to cut homeowners' coverage in state

Third-largest home insurer in California is seeking a 12.2% rate increase while others are cutting premiums

as posted at www.contracostatimes.com
By Marc Lifsher, LOS ANGELES TIMES
Feb. 18, 2007

 

SACRAMENTO - Allstate Corp., California's third-largest homeowners' insurer, is signaling it soon might cut back or stop writing such policies altogether in the state.

The Northbrook, Ill., company declined to discuss its intentions. But in the past year, it and other insurers have ceased writing new homeowners' policies and dropped some existing customers in a dozen hurricane-threatened states on the East and Gulf coasts.

California might be next, say Sacramento insurance experts and lobbyists, including Lt. Gov. John Garamendi.

While most of the state's major homeowners' insurance companies are cutting rates, Allstate is pointing to the state's potential for natural disasters and seeking a 12.2 percent rate increase from its policyholders. Allstate insures about one of every seven homeowners in California.

"Their strategy is an exit strategy," said Garamendi, who oversaw Allstate rates for the past four years as state insurance commissioner. "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 insists that the increase is necessary to build up reserves to pay future claims from anticipated wildfires and earthquakes.

"The costs of protecting against losses have gone up dramatically," spokesman Rich Halberg said. "They are costs that we believe should be reflected in rates."

Insurance Commissioner Steve Poizner said he's tracking Allstate's "supposed exit strategy" in other states and is assessing its California rate-increase proposal.

With No. 1 State Farm Mutual Insurance Co. and No. 2 Farmers Insurance Group cutting rates by 20 percent and 18 percent, respectively, Halberg said Allstate is not worried that higher rates might 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 are not overcharging policyholders.

Garamendi argued that policyholders at Allstate, State Farm, Farmers and Safeco Insurance deserved rate cuts to offset large profits earned in 2005 and 2004. Department of Insurance records showed that insurer losses in 2005 and 2004 were more than a third lower than the average for the past decade.

Three of the companies agreed to cut rates. Allstate, however, asked for a double-digit increase, and some consumer advocates see that as a first major test for Poizner, who says he is "committed to driving down the cost of insurance for everyone."

Poizner stressed that he won't be cowed by Allstate and is "a bit mystified" that Allstate wants to raise premiums when "three of the top five homeowners' insurers in California have reduced rates by approximately 20 percent."

One Sacramento Allstate agent, who asked not to be named, said she's been told by company officials that Allstate will stop writing new policies in April. Another said he had heard from other agents that the company will limit its coverage in the state.

Some California 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 from Los Angeles.

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 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 homeowners' insurer, covering one of every eight residences in the United States.

But Allstate said it needs to reduce its exposure to risk, build reserves and pay for reinsurance, a type of insurance bought by insurers to cushion potential losses. At the same time, it's trying to avoid future claims by requiring customers in some earthquake-prone areas to install automatic shut-off valves on residential gas lines.

Halberg said the company is no longer writing new policies in Florida, Connecticut, Delaware and New Jersey because of potential hurricane damage. It has also stopped or limited coverage in coastal areas of Alabama, Georgia, Louisiana, Maryland, Mississippi, New York, North Carolina, South Carolina, Texas and Virginia, he said.

On Wednesday, State Farm announced it no longer would write new homeowners' policies in Mississippi.

 

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