Tuesday, April 29, 2008

Judge Denies Allstate Bid To Halt Calif. Auto Rate Cut

A California court yesterday denied a request by Allstate to stay a regulator’s order that the firm cut its auto insurance rates by 15.9 percent.

Insurance Commissioner Steve Poizner reacted by issuing a statement calling the ruling by Superior Court Judge Peter Busch in San Francisco “a $250 million victory for consumers in California and for Allstate customers.”

Allstate said that while disappointing, the ruling “has no impact on the merits of Allstate’s appeal, and we believe we will ultimately win the appeal.”

Mr. Poizner said the court, by denying a stay, had rejected an effort to delay immediate savings to consumers pending the court action Allstate has brought challenging his department's determination that Allstate's existing passenger automobile rates are 15.9 percent in excess of what the law permits.

"I will continue to fight to ensure that insurance rates in California are not excessive, and when rates are found to be excessive, I will work aggressively to ensure that those rates are lowered," Mr. Poizner said

The 15.9 percent decrease in auto insurance rates for Allstate Insurance Company and Allstate Indemnity Company was announced in March, and amounted to a $245 million reduction, according to the insurance department.

Action to cut the rate, the department said, was the result of months of negotiations and an administrative hearing, which began with Allstate requesting no change to their auto insurance rates, and mirrors reductions made by other major auto insurers. Allstate's request was denied

According to the department’s calculations, Allstate's customers will save on average approximately $124 per year.

The administrative law judge agreed with the California Department of Insurance (CDI) claim.

Before the court ruling, lawyers for the department had argued that Allstate's rates should be reduced significantly because they were overly excessive to begin with.

The department said many insurers in California have significantly lowered auto insurance rates for their policyholders, and in 2007, Californians saved more than $700 million through reduced auto insurance rates.

Allstate, the department contended, should be held to the same standard as other auto insurers, based on data submitted to the department. It was noted that in October 2007, Commissioner Poizner approved $100 million in reduced auto insurance rates for AAA of Northern California and in July 2007, he approved a $65.8 million reduction for GEICO customers.

Allstate Indemnity Company is the fifth-largest auto insurer in California; Allstate Insurance Company is ranked ninth. Collectively, they earned $1.7 billion in auto premiums for insuring approximately two million vehicles in 2007. Allstate has nearly nine percent of California's auto insurance market, the department said.

Allstate said its pending action asks the court to review “key evidence which was excluded in the underlying administrative rate hearing.”

Allstate Senior Corporate Relations Manager Peter DeMarco said in a statement that, “Allstate wants to lower its auto rates and reduce the cost of auto insurance in California, especially during difficult economic times for our customers. However, the proposed auto rate reduction Allstate is being asked to take is neither fair nor reasonable.”

The company, he said, is reviewing the details of the court’s ruling and will “continue to explore our options going forward.”

Mr. DeMarco noted that in requesting the stay, Allstate had committed to setting aside money in a separate account to be used for refunds if the appeal is ultimately denied.

However, he said that the department, by requiring Allstate to implement a 15.9 percent rate decrease before its appeal is heard, means that if Allstate eventually wins the appeal down the road and the rate order is set aside as erroneous, “there is no way to recover those losses.”

Allstate, according to Mr. DeMarco, is being asked to lower its rates by almost twice as much as any other similarly situated insurance company, “even though our rates are already competitive.”

“If all of Allstate’s evidence had been considered in that hearing, we believe the outcome would have been a fair and reasonable rate reduction for our customers,” he said.

“Because key evidence was not considered during the administrative rate hearing, we have asked for a separate review by the court,” he added. “This information provides a more comprehensive representation of our auto rate practices. Filing the appeal also allows us the ability to get an independent interpretation of the law in a neutral setting.”