Allstate said Thursday that it would stop selling new home insurance policies in California and would continue to seek a 12% rate increase for its 900,000 existing customers.
The state’s third-biggest home insurer announced the cutoff Thursday, saying it needs to better manage the risk of potential losses related to wildfires and fires caused by earthquakes that might sweep the Golden State.
“Allstate is taking responsible action now so that the company will continue to be in a strong position to help protect customers in California and across the country,” said Robert H. Barge III, the insurer’s vice president for California.
In recent years, the Northbrook, Ill., company has stopped writing new policies in all or parts of 15 hurricane-prone states, covering most of the Gulf and Atlantic coasts.
The announcement delighted Allstate’s competitors that foresaw picking up new business, but it infuriated consumer activists and some government officials who say the company’s move was a cynical way to reap profit while avoiding risk.
“Nobody objects to an insurance company making a reasonable profit, but in this case it really puts into question whether we’re really in ‘good hands’ with Allstate,” said state Sen. Michael Machado (D-Linden), chairman of the Banking, Finance and Insurance Committee.
Insurance Commissioner Steve Poizner said he wasn’t surprised by Allstate’s actions in California because they “mirror its recent retreat in other markets such as Florida and New York. Poizner called the company’s decision “shortsighted,” but he stressed that Allstate had a right “to choose where it does business.”
Nevertheless, he predicted that consumers should have little trouble buying new policies because most companies have reduced the cost of homeowner coverage. He also pledged to carefully scrutinize Allstate’s September request for a rate hike and make the company prove why it shouldn’t reduce its premiums instead.
Policyholder Guy Nemiro of Hancock Park said he was shocked that Allstate was seeking to increase rates. “It’s a free market; I may want to shop around,” he said.
Allstate spokesman Rich Halberg said his company intended to continue to pursue its rate increase proposal for current policyholders.
In contrast, last year, major companies cut rates after a drop in claims helped them to earn strong profits in 2004 and 2005. State Farm Mutual, the biggest home insurer in the state, reduced premiums by 20%, and No. 2 Farmers Insurance Exchange took an 18% reduction. State Farm and Farmers collectively cover 2.7 million homes.
State Farm and Farmers say they’ll be happy to pick up customers spurned by Allstate.
“We are open for business,” State Farm spokesman Bill Sirola said. “We would volunteer to help out all of those looking for homeowners insurance who can’t find it at Allstate.”
Farmers “has no plans to change the way we do business in California,” said Jerry Davis, its director of communications.
For their part, policyholder advocates say they want Commissioner Poizner to take a tough stance on Allstate if the company insists in limiting its exposure in California.
“I think he ought to say you can’t cherry-pick,” said J. Robert Hunter, the top insurance expert at the Consumer Federation of America in Washington.
Douglas Heller, president of the Foundation for Taxpayer & Consumer Rights in Santa Monica, suggested that the commissioner ban Allstate from returning fully to the homeowners market for at least 10 years. “It would be completely unfair to California customers if Allstate tries to treat the California market like an accordion, coming in when business is good and then walking out,” he said.
Allstate’s move to limit its exposure in California didn’t surprise Ronald Kaplan, an agent in Aptos in Santa Cruz County. Last year the company started tightening up its underwriting procedures, demanding that any home be inspected before Allstate offered coverage.
“When somebody is saying, ‘I’m about to close escrow. Can you write me a policy?’ and you’ve got to delay for an inspection, it definitely hampers your business,” he said.
Other industry experts warned that existing Allstate customers should carefully review renewed policies to make sure the company hasn’t made any changes.
“They might reduce some forms of coverage. You might see increases in your premium,” said Jim Simonds, an executive at Arroyo Insurance in Pasadena. “If you have an Allstate policy, you definitely should pay attention to whatever they send you.”
Lifsher reported from Sacramento and Kristof from Los Angeles.