No auto for Allstate

The insurer can no longer write new policies in the state.

By TOM ZUCCO and KRIS HUNDLEY, Times Staff Writers
Published January 17, 2008

TALLAHASSEE - Florida Insurance Commissioner Kevin McCarty gripped the lectern and leaned into the bank of microphones.

"We're going to hit them where it hurts," he said.

In a move unprecedented in Florida regulatory history, McCarty on Wednesday issued an order banning Allstate Insurance Corp. from writing new auto insurance policies in the state until the company complies with subpoenas sent by state regulators in October.

Allstate wrote nearly $2-billion worth of auto insurance in Florida in 2006, the last year for which statistics are available.

The suspension comes a day after McCarty abruptly halted a public hearing looking into Allstate's underwriting and claims-paying practices in its homeowners insurance business, saying the company had deliberately failed to turn over documents key to the investigation.

Regulators want to know why Allstate, the largest publicly traded U.S. home and auto insurer, has not complied with legislation passed last year that directs insurance companies to lower their homeowner rates. Allstate had asked to raise its homeowner rates an average of 42 percent statewide, a request that was denied in November.

"Who are they to tell us what's relevant?" McCarty said. "I have little choice but to take an action that will send a clear message about how seriously I am taking this issue."

The suspension applies to Allstate Insurance Co., Allstate Indemnity Co. and Allstate Property and Casualty Co., all of which are the company's primary sellers of auto insurance. Two of Allstate's smaller subsidiaries, Encompass Floridian Indemnity and Encompass Floridian Insurance, are not affected by the order.

"They've been horrific in their corporate ethic in terms of not responding to the great reform the Legislature passed last year," said Gov. Charlie Crist, a frequent critic of the property insurers in the state. "I'm of the belief that they are probably violating the law.

"It's greedy and it's wrong."

Allstate is surprised

The financial impact of the suspension eventually could be immense, regulators say, because auto insurance is generally regarded as one of the most lucrative lines of insurance. The second-largest auto insurer in Florida, behind State Farm, Allstate's 1.7-million auto policies represent more than three-quarters of the company's business in Florida.

The company sells about 3,500 new auto policies a week statewide.

"They're going to be losing a lot of money," said Steve Parton, the Office of Insurance Regulation's general counsel, adding that Allstate can appeal to district court to seek an injunction to stop the order.

In a statement Wednesday, Allstate said it was surprised at the actions "based on our dealings with regulators over the course of several months and dozens of phone conversations."

The company said it has already turned over nearly 40,000 documents to regulators and will continue to send more.

"We have not yet received an order and are evaluating our options," Allstate said in a statement. "At this time, it is not clear how this action will affect all of the more than 1,100 Allstate agents in Florida who are small-business owners and employers."

Fine vs. suspension

McCarty said the suspension will not affect current Allstate auto policyholders, who are free to renew their policies with the company.

Those with Allstate homeowner policies will also be unaffected, and the company can continue to sell property insurance.

But because Allstate has stopped writing new homeowner policies and has dropped more than 400,000 policies over the last four years, McCarty said stopping the Northbrook, Ill., insurer from writing new homeowner business would have been pointless.

Regulators said they had two choices after Allstate refused to turn over documents: fine the company $10,000 a day or suspend its certificate of authority to do business. McCarty chose the latter. And he chose the line of insurance he thinks could hurt Allstate the most.

"If Allstate is willing to pay $25,000 per day in fines to a Missouri court for its ongoing failure to provide similar documents," McCarty said, "it's obvious to me that it will take more than a monetary sanction to get them to comply with our subpoenas."

Not everyone thinks McCarty's actions will force Allstate to rush boxes of internal records to Tallahassee.

"This is largely a case of gamesmanship," wrote Thomas Cholnoky, an analyst at Goldman Sachs Group Inc. in a note to investors Wednesday. "It is unlikely Allstate would actually lose its ability to permanently write auto insurance in the state.

"Eliminating the second-largest auto insurer from the market would not help the state's goal of reducing rates - and in fact would have the exact opposite effect."

Agents at most risk

As this high-stakes game of chicken plays out, it appears Allstate agents could suffer the most, at least initially.

Several Allstate agents in the Tampa Bay area declined to comment on McCarty's action, saying their contract with Allstate prohibits them from talking with reporters. Allstate's agents in Florida are required to sell only Allstate insurance.

For the past several years, as Allstate has stopped writing property insurance in Florida, its agents have been allowed to sell a limited number of other companies' products. But veteran agents said even those companies balk at covering certain areas of the state, such as coastline properties, limiting their ability to write non-Allstate policies.

Adam Shores, an Allstate spokesman, said, "At this point, it's unclear how this suspension will affect our agents. They're small-business owners themselves, so we're concerned how this will affect them. A strong portion of their business comes from auto."

Shores said agents' commission on auto policies is about 10 percent of the premium.

Steve Harrell, now an independent agent in Palm Harbor after 24 years with Allstate, said the impact on Allstate's captive agents will depend on the length of the suspension.

"If they're with a seasoned agency, 95 percent of their income is through renewals," which are not impacted by the suspension, he said. "But if they cannot write auto, that's a reasonably significant injury if they don't resolve it soon. I'd be very disappointed."

Potential outcomes

Though Harrell doesn't mind seeing his old company on the hot seat with the state, he doesn't think the current standoff will do anything but aggravate Florida's insurance crisis.

"The solution is not going to come from Tallahassee," he said, saying a state crackdown will only scare insurers away. "They're reluctant to get involved where they feel they don't have control."

State Sen. Bill Posey, R-Rockledge, chairman of the Senate Banking and Insurance Committee, said the action was not designed to punish agents. "They're being bounced around as badly as the consumers are," Posey said. "What choices are there to let the executives know we are serious?

"A lot of companies already said Florida was a hostile environment, and any company that would say that it's hostile is simply putting the bottom line above consumers. This is not a witch hunt. It's a fact-finding mission."

Allstate stock lost 24 cents to close at $50.93 Wednesday on New York Stock Exchange. The stock has declined about 20 percent in the past 12 months.

Allstate does have one other option: It could leave the state.

"You mean the company that's charging our citizens the most? I'm not concerned about that at all," Crist said. "Good riddance."

Times staff writers Steve Bousquet and Paul Swider contributed to this report. Tom Zucco can be reached at zucco@sptimes.com or (727) 893-8247.

Q&A The fallout

What does this mean for existing Allstate auto customers?

Absolutely nothing. Policyholders are unaffected by the suspension. Customers can still make claims and get assistance from agents. Allstate auto policyholders can renew policies and add endorsements.

Are Allstate homeowner policies affected?

Not at all.

[Last modified January 17, 2008, 00:37:25]