Allstate Wins State Approval for Rate Hikes
State regulators Thursday granted Allstate Corp. increases in auto and homeowner insurance rates--more bad news for California consumers already grappling with rising premiums and diminishing options.
The decision by the state Department of Insurance comes on the heels of other rate increases, including hikes totaling more than 14% for State Farm General Insurance Co., the state’s largest home insurer. Farmers Insurance Group and the Automobile Club of Southern California have rate-increase requests pending, and State Farm said last week that it would stop writing new homeowner policies in California because of rising losses.
Allstate, California’s third-largest insurer, asked for a 22.3% increase for homeowner policies and was granted 18.5%. For auto coverage, it requested 20.1% and was granted 8.9%.
The company’s 895,000 California homeowner policies have an average annual premium of $605, Allstate spokeswoman Lisa Wannamaker said. The increase will boost the payment on such a policy by about $112 a year. The average annual increase for Allstate’s 2 million auto policyholders, who pay an average of $718 a year, will be $64.
The increase appears to demonstrate that insurers have convinced the Department of Insurance that they are in a genuine profit squeeze, as shown by a series of recent downgrades of insurance company credit ratings.
The most convincing evidence of that may have been State Farm’s announcement last week that it would suspend taking on new homeowner business in California because of rising building costs and soaring claims related to mold.
“Some people say insurers just want to make a lot of money, but you can tell it’s serious when State Farm says they’re no longer going to sell insurance,” said Brian Sullivan, an independent insurance analyst who edits trade journal Property Insurance Report.
“It’s hard to say they’re making big money when they aren’t selling any insurance.”
For many years, strong profits on auto coverage and a bull market for investments helped subsidize homeowner rates, Sullivan said. Allstate, for example, hadn’t raised rates for homeowner policies since 1994, although the company increased auto rates last year by 6.2%.
“We’re all in a little bit of sticker shock now, but the trends have turned,” said Nancy Kramer, a spokeswoman for the California Department of Insurance. “Claims are up, and the cost of claims--especially medical--has gone through the roof. And then the stock market bubble burst, so the market is no longer shoring up their losses” on operations.
In addition to the State Farm and Allstate actions, 21st Century Insurance said recently that it would end its three-year experiment with selling homeowner insurance in California.
Woodland Hills-based 21st Century instead has begun referring customers to a subsidiary of Countrywide Credit Industries Inc. for coverage.
Sullivan noted that auto rates actually went down somewhat in the late 1990s, while homeowner rates remained flat. The homeowner market hasn’t been highly profitable since the 1960s and 1970s, he said, but big carriers such as Allstate, State Farm and No. 2 California insurer Farmers had bundled auto and homeowner polices profitably.
Now, though, the industry is suffering from a triple whammy, he said: skyrocketing auto claims, the high cost of building materials and labor, and “the whole hullabaloo over mold caused by water damage.”
Rates also had been held down in recent years because State Farm, which had a huge surplus, had decided to keep its rates down at all costs to maintain its market share--even though it was losing money. Its decision to stop writing new homeowner policies in California, along with its departure from the mold-ridden Texas market and other cutbacks, indicates that policy has ended, analysts said.
The higher Allstate rates go into effect May 13 for new and renewed homeowner policies and May 27 for auto policies.
