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Allstate may raise rates, cut policies

The insurer says the Legislature hasn't done enough to help the industry recover from last year's hurricanes.

By JEFF HARRINGTON
Published May 19, 2005

Allstate Floridian, the third-largest homeowners insurance company in Florida, warned Wednesday that it will seek a "significant" rate increase and transfer nearly 95,000 of its policyholders to another private insurer.

It also plans to gradually pull out of its relatively small commercial line, which provided property coverage to businesses across the state.

Allstate said the impetus for its decision was twofold: steeply higher costs for reinsurance after Florida's horrific hurricane season and failure of the state Legislature to take more dramatic steps to reimburse storm-battered insurers out of the Florida Hurricane Catastrophe Fund (or CAT Fund).

Last season, insurance companies had to rack up $4.5-billion in combined losses from a single storm to get money from the CAT Fund. As a result, most insurers received little or no reimbursement after paying claims from the four 2004 storms, even though combined losses from the season exceeded $20-billion.

Allstate was by far the most vocal of the large insurers, even taking out radio ads pushing the state to significantly lower the threshold for tapping into the catastrophe fund after big storms.

Legislators approved giving insurers greater access to the CAT Fund, particularly the next time the state is hit by multiple storms in a year. But Allstate insists they didn't go far enough.

"A lot of (the change announced Wednesday) was due to the Legislature not enacting the CAT Fund reforms we thought were necessary," Allstate spokeswoman Deb Clouser said.

As a result, Allstate bought a two-year reinsurance program from other private companies to protect itself against losses above $800-million in a single year or $1.6-billion over two years. The reinsurance would cover the company for losses not covered by the CAT Fund. Allstate's Illinois-based parent also committed to giving the Florida unit an extra $375-million in capital, if necessary, to get through the year.

Now, it's time to recoup that cost.

"A significant rate (increase) would not be unlikely," Clouser said, without being more specific.

Allstate expects to put in its rate request to Florida regulators in a matter of weeks, shortly after the start of the next hurricane season.

Florida Insurance Commissioner Kevin McCarty made no promises of approval. "Any rate changes Allstate might seek will be thoroughly reviewed and will have to be actuarially justified, or they will be denied," he said.

Since the state lifted a moratorium on rate filings two weeks ago, four other insurers have filed for double-digit rate hikes.

Allstate said about 12.5 percent of its 758,000 policies statewide, or 94,750 policies, would be dropped come renewal time and offered coverage with Universal Insurance Co. of North America, a small, Sarasota insurer.

The change will largely be focused elsewhere in Florida; only about 6,300 policyholders in the five-county west-central Florida area will be moved to Universal.

Those that are shifted can continue to use their Allstate agent as a contact point, but their policies will be serviced by Universal.

McCarty downplayed the impact Wednesday, saying there would be no lapse in coverage. He described Universal as "a solid company with strong financials."

McCarty also said the effect on commercial insurance would be minimal as Allstate was a small player in the field, with 16,000 policies statewide.

"We are confident that business owners will be able to secure alternate coverage as this market is healthy in Florida," he said.

Jeff Harrington can be reached at harrington@sptimes.com or 813 226-3407.

[Last modified May 19, 2005, 00:43:18]