Allstate Also Stops Issuing Policies for Homeowners : Insurance: Move is latest in series following the Northridge earthquake.

Allstate Insurance Co., California’s second-largest homeowners insurer, suspended the sale of new property and earthquake insurance Thursday, saying it “could not afford to be the only game in town” after other major carriers had pulled out of the market.

The action reflects what Allstate chief counsel Robert Pike called “a grossly dysfunctional market, if not a market meltdown,” arising from the Northridge earthquake.

Allstate’s move means that none of California’s top three carriers--including State Farm Mutual Automobile Insurance Co. and Farmers Insurance Group--is actively writing new homeowners policies, and a slew of smaller companies have restricted their writings.

Consumers, who were already having problems finding homeowner coverage, can expect those difficulties to increase.

Allstate said it will renew existing policies and will write new policies for current customers who are buying new homes. The company will also honor its commitments on new policies that are still in the processing stage, Pike said.

Gov. Pete Wilson has expressed concern that the lack of insurance availability could disrupt real estate sales and harm the economic recovery. Wilson, state regulators and legislators, consumer representatives and insurance industry officials have been meeting in recent days to discuss possible legislative solutions to the problem.

The insurance industry is pushing for a repeal of the state law that requires homeowners insurers to offer their customers earthquake coverage.

Insurance Commissioner John Garamendi last week ordered the California Fair Plan--the state’s high-risk property insurance pool--to extend its residential and earthquake insurance statewide in order to provide last-resort coverage for consumers who can’t find it elsewhere. The Fair Plan offers stripped-down fire insurance policies without liability coverage.

A spokesman for Garamendi said Thursday that Allstate’s action was anticipated and that the Fair Plan should be able to cope with the demand for coverage, at least in the short term.

State Sen. Art Torres (D-Los Angeles), chairman of the Senate Insurance Committee and Democratic nominee for insurance commissioner, said he was investigating whether the insurers’ withdrawals from the homeowners and earthquake market might constitute an illegal boycott of California.

The dominoes started falling June 9 when 20th Century Industries’ two insurance subsidiaries--facing claims of more than $600 million from the Jan. 17 quake--abruptly stopped writing new homeowners policies and stopped renewing existing earthquake coverage.

Farmers Insurance Group, California’s No. 3 carrier, followed June 16 by suspending its writings of new homeowners and earthquake coverage. State Farm, under a “managed growth program,” is accepting new customers only as old ones leave. Safeco Insurance Co., Chubb Group and TIG Insurance Co. are other large carriers that have restricted their sales.

As a result, Allstate says, it has been left holding the bag. The company in recent weeks has been writing at the rate of about 19,000 new property policies a month--up 30% over last year’s levels, said chief counsel Pike. And in the Los Angeles area, where a higher proportion of customers opt for earthquake coverage, new business has increased by 40% over last year, he said.