Allstate Threatens to Leave Auto Market, Degrade Service in CA, Unless Motorists Continue Paying Excessive Premiums
November 05 2007 - 1:34PM
PR Newswire (US)
Despite Staggering Profits, Allstate Continues to Battle Regulatory
Requirement to Lower its Auto Insurance Rates More Than $300
Million Per Year SAN FRANCISCO, Nov. 5 /PRNewswire-USNewswire/ --
Consumer advocates will argue that Allstate must lower its auto
insurance rates by 18.8% (an average $150 per car) under new rules
that limit excessive profits by the industry in a Department of
Insurance hearing that began today in San Francisco, CA. and is
expected to last three to five days. Allstate, the nation's second
largest auto insurer, seeks five separate exemptions to the rules
that determine auto insurance rates, despite the company's
above-average profitability and shareholder return, In the Matter
of the Rate Application of Allstate Insurance Company and Allstate
Indemnity Company, File No. PA-2007-00004. The Foundation for
Taxpayer and Consumer Rights (FTCR) has determined that Allstate is
overcharging drivers over $300 million per year. The non-profit
group, which has challenged Allstate's auto insurance rate plan,
will testify this week that Allstate should be lowering its rates
$300 million per year in accordance with state regulations. FTCR
has also challenged Allstate's proposed 12% increase in homeowners'
premiums; that issue will be heard at a separate hearing in January
2008. "Allstate boasts of record profits to Wall Street, then comes
to California claiming it's not making enough money in order to
charge its policyholders higher premiums. Californians are required
to buy auto insurance, so companies must be reined in when their
rates would gouge their customers. Regulators can't let Allstate
bully its way to higher profits," said FTCR attorney Todd Foreman.
Allstate Threatens to Leave Auto Market, Degrade Claims Handling in
State: In the written testimony of a hired expert submitted for the
current hearing, Allstate issued a thinly veiled threat to
insurance regulators, suggesting that a company forced to abide by
rules limiting excessive profit might: "reduce the quality of its
services to a level lower than what it would have otherwise been,
by having fewer offices in the state, advertising less vigorously,
or reducing the quality of its claims processing. Ultimately, a
company might choose to leave the state entirely if long-term
prospects are sufficiently poor." In an early victory for consumers
late last week, Allstate withdrew its request to charge drivers an
additional $15.5 million in premiums based upon its claims of
"improving the customer experience." The allegedly improved service
efforts included the mailing of thank you cards and the
distribution of "phone etiquette tips" to company employees. In
fact, Allstate's own internal poll showed that the company has
consistently fallen below the industry average for customer
satisfaction since at least the year 2000. "It was absurd that
Allstate would ask California consumers to pay millions extra for
alleged improvements to customer service. We called their bluff,
and Allstate obviously realized that this argument had no chance in
Court, so they dropped the claim at the eleventh hour," stated
Daniel Y. Zohar, FTCR's lead outside counsel in the rate challenge
who is with the Los Angeles-based Zohar Law Firm, P.C. "Proposition
103 requires that insurance companies prove that rates are high
enough to pay claims, but not excessive. It does not permit
insurance companies the right to overcharge customers to maintain
mega-profitability. Yet all that Allstate is doing here is trying
to reward Wall Street at the expense of Californians." Shareholders
Hear One Story, Ratepayers Another: Allstate will also argue that
it must be allowed to charge more than allowed by the regulatory
rate formula because the required 18.8% cut would cause the company
to suffer deep financial hardship. However, the company's
statements to shareholders tell a different story. Allstate's net
income for 2006 alone was approximately $5 billion and total
shareholder return was 590% between 1994 and 2006. The 2006
Allstate Corporation Annual Statement reports that Allstate common
stock consistently outperformed both the S&P 500 Index and the
S&P Property/Casualty Index (an index that measures stock
performance at companies with similar risk to Allstate). See slides
from 2007 Allstate stockholders meeting:
http://www.consumerwatchdog.org/resources/allstate_netincome.pdf
http://www.consumerwatchdog.org/resources/allstate_stockreturn.pdf
"Allstate's own reports to shareholders show investors are getting
more than their money's worth and California regulators can't
conclude otherwise," said Foreman. This hearing is the first to be
conducted under new regulations issued by the Department of
Insurance last year that revised guidelines for profitability under
the rules of Proposition 103. Prop 103 requires insurance companies
to open their books and submit to public hearings to justify that
rates are adequate without being excessive. Using Prop 103, FTCR
has helped Californians save more than $800 million dollars by
challenging several other companies' auto, homeowners, and medical
malpractice insurance rate proposals since 2003. A full list of
these savings is available at:
http://www.consumerwatchdog.org/images/InsSavings.gif DATASOURCE:
Foundation for Taxpayer and Consumer Rights CONTACT: Doug Heller,
+1-310-392-0522 ext. 309 and Carmen Balber, +1-310-392-0522 ext.
324, both of the Foundation for Taxpayer and Consumer Rights. Web
Site: http://www.consumerwatchdog.org/
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