Allstate Corp., the state’s third-biggest home insurer, must slash its annual premiums by more than one-quarter, saving more than 850,000 customers about $250 apiece.
The rate reduction, to be announced this morning in Los Angeles by state Insurance Commissioner Steve Poizner, marks the end of a battle of more than two years between state regulators and Allstate. The company covers about 1 in 7 homes, condominiums and rental units insured in California.
Poizner’s legal order, signed Tuesday, rejects Allstate’s request for a 9.3% increase in its homeowners insurance rates, and, instead, instructs the company to reduce its existing premiums by 28.5%. “In today’s sputtering economic environment, people need all the help they can get just to pay the bills,” Poizner said. “That’s why I’m pleased to order this tremendous rate cut.”
According to the Department of Insurance, the reduction should drop average Allstate premiums to around $600 a year. The new rates will take effect July 28.
The insurer will comply with the commissioner’s order, Allstate spokesman Peter DeMarco said. “We are reviewing the order in detail and communicating with the department about the process for adjusting the rates of our 850,000 homeowners policyholders in the state.”
In May 2007, Northbrook, Ill.-based Allstate announced that it would no longer issue new homeowners insurance policies in California. The company contended that it needed to better manage the risk of potential losses related to wildfires and blazes caused by earthquakes.
In the wake of Hurricanes Katrina and Rita in 2005, Allstate had stopped writing new policies in all or parts of 15 hurricane-prone states, covering most of the Gulf and Atlantic coasts.
Poizner’s order reducing Allstate’s homeowner rates is the insurer’s second setback in recent months with California regulators. In March, Poizner told Allstate to cut automobile insurance rates 15.9%, saving policyholders an average of $124 per car. Allstate fought the decision in Superior Court but later dropped its appeal.
The push to lower Allstate’s homeowner premiums began in mid-2006 when then-Insurance Commissioner John Garamendi ordered Allstate and several other companies to show that their rates were not excessive.
Proposition 103, an initiative approved by voters in 1988, gives the state’s elected insurance commissioner broad powers to set companies’ rates, ensuring that they are not “excessive, inadequate or unfairly discriminatory.”
Three of the insurers soon agreed to lower rates. No. 1 State Farm Mutual slashed its premiums 20%, and those at second-place Farmers Insurance Group fell 18%. The third firm, Safeco Corp., cut its homeowner premiums 20%.
Garamendi, the state’s lieutenant governor, said he was pleased that Allstate finally was cutting its rates.
“The company has pocketed far more of the policyholders’ money than was warranted,” he said. “But, frankly, they must in my view provide a rebate for the three years in which they charged an illegal amount.”
The question of whether Allstate might have to refund past premiums is pending in a separate legal proceeding, said Darrel Ng, a Poizner spokesman.
Allstate should comply quickly with Poizner’s order so that proceedings on the rebate issue can get underway, said attorney Pamela Pressley, who represented Santa Monica-based Consumer Watchdog in the Allstate case before an administrative law judge. A predecessor of the activist group wrote Proposition 103 two decades ago.
“This is a heck of a decrease. It’s huge,” Pressley said. “It’s been a long time coming.”