November 6, 2007
Allstate seeks exemptions to new rules limiting excess auto insurance industry profits in California
San Francisco, California – Consumer advocates at a Department of Insurance hearing in California are arguing that Allstate must lower its auto insurance rates by 18.8 per cent, an average of US$150 per car, under new rules that limit excessive profits by the industry, while Allstate is seeking five separate exemptions to the rules that determine auto insurance rates.
The non-profit Foundation for Taxpayer and Consumer Rights (FTCR) says it has determined that Allstate is overcharging drivers by more than US$300 million per year, and will testify this week that Allstate should be lowering its rates by that amount in accordance with state regulations. FTCR has also challenged Allstate’s proposed 12 per cent increase in homeowner premiums, which 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,” says FTCR attorney Todd Foreman. “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.”
In the written testimony of a hired expert submitted for the current hearing, Allstate suggested 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.”
Last week, Allstate withdrew its request to charge drivers an additional US$15.5 million in premiums based upon its claims of “improving the customer experience,” which included mailing thank-you cards and the distribution of “phone etiquette tips” to company employees.
The FTCR says that Allstate will argue that it must be allowed to charge more than allowed by the regulatory rate formula because the required 18.8 per cent cut would cause the company to “suffer deep financial hardship”, but says that Allstate’s net income for 2006 was approximately US$5 billion, and its total shareholder return was 590 per cent between 1994 and 2006.