Allstate to Settle Rate Claims
Allstate Insurance Co. has agreed to pay $30 million to an estimated 250,000 Californians who were allegedly overcharged for auto and homeowner policies, in a settlement expected to be announced today.
The company, though not admitting wrongdoing, also has agreed to pay a $4-million fine to the state Insurance Department.
Allstate violated California insurance rules by partially basing its rates on consumer credit scores and by failing to give available discounts to qualified drivers and homeowners, Insurance Commissioner John Garamendi said.
“Insurance companies have to tell us what discounts they are going to use and how they are going to price their products,” Garamendi said. “In this case, Allstate was not following their own rules -- and violating some of the department’s rules.”
The insurer, a subsidiary of Northbrook, Ill.-based Allstate Corp., agreed to the settlement to resolve “different interpretations of the insurance code,” spokesman Rich Halberg said.
“There is no admission of liability,” Halberg said. “This clears the way for an improved working relationship with the Insurance Department.”
The $30 million represents the amount that policyholders were overcharged, Garamendi said. Based on that, the average refund would be about $120, but individual refunds will vary based on the amount of the policy and other factors.
Insurance Department officials said Allstate improperly overcharged customers in five ways:
* Allstate included a type of credit score, “financial stability ratings,” when underwriting homeowner policies, which could cause some individuals to get bumped out of “preferred” rates into higher-cost plans.
* When renewing existing homeowner policies, Allstate didn’t always provide the best available rate.
* Customers applying for homeowner insurance for the first time were improperly charged a higher rate if they did not previously have renters’ insurance.
* The company sometimes failed to provide multi-policy discounts to those who insured both their homes and their cars with Allstate.
* Auto policyholders who had more vehicles than drivers were overcharged in some cases. Regulators said the rate for the extra vehicle wasn’t always based on the cost for the lowest-risk driver, as required.
As part of the settlement, Allstate also agreed to make changes in the way it handled fire damage claims, Garamendi said.
In the wake of the 2003 Southland wildfires, numerous Allstate policyholders complained that their insurance claims were shifted from one adjuster to another -- creating extra work for the customers and delaying payment of their claims, Garamendi said.
Wildfire victims will not receive restitution, he said, but the process for submitting claims will be streamlined under the new agreement.
Garamendi also said that Allstate and other insurance companies had systematically underestimated the cost of replacing homes, which left many homeowners with too little coverage to rebuild. Allstate has agreed to revamp its method of determining replacement costs, Garamendi said, and similar agreements with other insurers are expected.
Regulators began examining Allstate in response to consumer complaints and questions raised by its own staff auditors, Garamendi said.
“Some of these issues are endemic in the industry,” Garamendi said. “There are other investigations in the pipeline.”
Allstate policyholders should contact the company or their insurance agent to determine whether they are eligible for a refund.
