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Allstate rate hike request challenged

By TOM ZUCCO
Published November 3, 2006

ADVERTISEMENT [AP Photo] Allstate Floridian and Allstate Floridian Indemnity are seeking average statewide increases of 22.5 and 33.2 percent, respectively.

State regulators had reviewed Allstate Floridian's rate increase request and were ready to pounce. Thursday afternoon in Tallahassee, they got their chance.

In one of the most contentious rate hearings for a major insurer in recent memory, actuaries and attorneys from the Florida Office of Insurance Regulation grilled Allstate officials for more than three hours about justifying a double-digit increase.

Regulators said later that many of the answers they got were incomplete or vague and that they will have to go at it again.

Allstate Floridian and Allstate Floridian Indemnity are seeking average statewide increases of 22.5 and 33.2 percent, respectively, for homeowners policies.

But in some areas, the hikes could be as high as 73.5 percent. In parts of Pinellas and Pasco counties, rates could rise as much as 70.4 percent.

Homeowners in Florida have faced higher rate increase requests than what Allstate proposes, most notably a 71.5 percent average statewide increase by Nationwide that was denied last month, and a 52.7 percent increase by State Farm that was approved in July.

But Allstate differs in that it has dramatically cut back the number of homes it insures. Once the second-largest insurer in the state behind State Farm, Allstate has canceled about 240,000 policies since the 2004 hurricane season, leaving the company with about 390,000 policies. Moreover, Allstate's request comes on top of a 16 percent average increase granted last year.

Allstate officials said there are no immediate plans for cuts, but warned that unless they get rate relief to cover higher reinsurance costs, the Florida company could become insolvent.

In formulating their request, Allstate officials also cited a computer model they used that predicted a series of more active hurricane seasons.

By law, insurance companies cannot raise rates based on past losses. They can, however, seek higher premiums based on projections of future losses.

From the start Thursday, regulators tore into Allstate's plan.

Even before the questioning began, George Grawe, Allstate Floridian's general counsel, acknowledged his company would submit an amended filing that would lower the rate.

Regulators gave Allstate until noon Monday to amend its filing.

However, Allstate didn't back off the methodology for putting its request together, giving regulators plenty to pick apart.

At one point during the hearing, OIR general counsel Steve Parton asked Allstate's senior actuary, Ryan Michel, about the computer model the company used to determine its rates. By law, the models used must be approved by the state.

Parton: "The model is out of date, is it not? Aren't you, as an actuary, supposed to understand the law?

Michel: "I rely on our legal advice."

Another exchange between OIR actuary Bob Lee and Allstate regional manager Bonnie Gill resembled a courtroom showdown:

Lee: "You support a 75 percent cap on premiums, but there's no support here. Why?"

Gill: "We chose that judgmentally."

Lee: "But how did you arrive at it?"

Gill: "Purely judgment."

Lee: "You didn't do any fiscal testing other than it looked like a good number?"

Gill: "It had a lot to do with the 2005 filing. 75 percent was the maximum last time, so we chose that again."

When it was over, Parton characterized Allstate's performance this way:

"Amongst the numerous shortcomings in this filing, Allstate is asking to charge for reinsurance that it has not yet purchased; it is relying on an outdated hurricane model which is not approved and feeding it outdated data; it seeks to use any unexpected gains produced by policyholder premiums to further compensate its agents rather than compensate policyholders; and it says its expense ratio has increased despite the fact it has cut 240,000 policies."

OIR spokesman Bob Lotane said regulators were most frustrated with Allstate's "lack of support in the filing and the inability to answer questions about that lack of support.

"They promised to provide us with many of the things they have not been providing us with." Lotane added. "But we have until Nov. 28th to act on the filing. If not, it is automatically approved, and we're not going to let that happen."

In all, Thursday was not a good day for the insurance industry. Earlier in the day, OIR added United Services Automobile Association to the list of companies that has been denied a rate request.

Lotane said the increased number of rate hike denials are not an indication regulators are cracking down on insurance companies amid a growing public outcry and a pending election. "If anything," he said, "we're getting more filings that just are not supportive."

Tom Zucco can be reached at zucco@sptimes.com or (727) 893-8247.

[Last modified November 3, 2006, 02:03:32]