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Allstate's rates take a storm surge

Hurricanes or not, Florida officials take issue with a hike of 28 percent that the company imposed without public scrutiny.

By JEFF HARRINGTON
Published June 24, 2005

Florida Chief Financial Officer Tom Gallagher on Thursday accused Allstate Floridian of breaking state law by charging sharply higher insurance premiums to Florida homeowners before getting state approval.

Allstate, the third-largest homeowners' insurer in the state, said Wednesday it plans to formally apply for an average rate increase of 28 percent next month although the higher bills are going out now.

Gallagher said Allstate's move "blatantly ignores" a state law passed this spring that requires rate increases of more than 15 percent to go through a public hearing process.

Allstate said it is following a long-standing Florida law that allows insurance companies to raise rates before getting approval of state regulators, with the understanding that if the request is later rejected, homeowners get a refund.

"It's unconscionable," Gallagher said. "Just one month ago, Allstate announced the nonrenewal of 95,000 Floridians. Now they are hitting their remaining policyholders with a rate hike that they are afraid to hold up to public scrutiny."

Gallagher acknowledged little direct control over the situation, but urged Insurance Commissioner Kevin McCarty to intervene, possibly by filing a cease-and-desist order to stop the higher bills.

McCarty, who reports to Gallagher and other Cabinet members, said he shares Gallagher's concerns and will review the rate filing. Regulators with his office will meet with Allstate representatives Monday, he said.

In previous years, other insurers have used the so-called "use-and-file" rule, which allows them to charge higher rates before regulators approve them. However, Gallagher said Allstate is the only insurer to use the tactic since last year's hurricanes and since the Legislature spelled out more stringent rules for public hearings.

Allstate, citing an emergency need to shore up its reserves during hurricane season, isn't backing down.

"We believe the proposed Allstate Floridian rate increase is absolutely necessary, justified, and in compliance with the law," said Phil Lawson, president of the Florida-based subsidiary of Allstate Insurance.

Although the average rate increase would be 28 percent, some individual homeowners would face lower increases and some potentially much higher.

Allstate spokesman Ryan Priest could not provide specifics on the amount of money that would be raised by the hike or the average dollar increase for policyholders. But he said the additional money is needed to begin building capital before any major storms hit.

If that's the case, Gallagher wonders, why did Allstate chairman Edward Liddy report solid returns for the parent company and characterize 2004 as a "great year for Allstate" to shareholders?

"The preliminary look at the cash flow for Allstate Floridian shows that they're in pretty good shape," Gallagher said. "It's going to be surprising to me if they can justify that kind of increase."

Allstate has been the most vocal of the large insurance companies about making Florida a less risky place to offer policies in light of last year's storms. Allstate even bought radio ads pushing the state Legislature to make it easier for insurance companies to tap into the state's catastrophe fund to cover losses.

Under the law in effect last season, insurance companies had to rack up $4.5-billion in combined losses from a single storm to get money from the 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.

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

The rate hike is only part of Allstate Floridian's response; the insurer, whose parent company is based in Illinois, also is dropping thousands of customers throughout Florida to cut down its risk.

Last month, Allstate said about 12.5 percent of its 758,000 policies statewide, or 94,750 policies, would be dropped come renewal time. They would be offered coverage with Universal Insurance Co. of North America, a small Sarasota insurer. Allstate also plans to gradually pull out of its relatively small commercial line, which provided property coverage to businesses across the state.

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

[Last modified June 24, 2005, 00:58:32]