Allstate Defends Property Insurance Rate Proposal to Lawmakers

Warming oceans, and the possibility they may bring more hurricanes, have to be considered when setting property insurance rates, Allstate officials told lawmakers Monday, defending themselves against allegations they are gouging consumers.

Allstate officials went before the Senate Select Committee on Property Insurance Accountability to answer questions about why the Northbrook, Ill.-based company wants to increase home insurance rates, despite a new law intended to lower premiums.

That law, championed by Gov. Charlie Crist and passed a year ago, made more state backup insurance available at low prices to companies so they could reduce their reinsurance cost and thus lower premiums for Floridians. Residents of the state have complained since 2004 that home insurance rates have shot up; insurance companies have repeatedly reminded homeowners that storms wrecked Florida in 2004 and 2005, nearly bankrupting a number of insurers.

Allstate Floridian Insurance was one such company, a fact brought up again by company officials Monday.

Allstate Floridian Chairman and CEO Joe Richardson said his company paid out about $1 billion more in claims in those two years than it took in premiums. Had it not been bailed out by its parent company, Allstate Corp., the Florida subsidiary would have been insolvent, he said.

One of the main differences between what the company has asked to charge customers and what state regulators have determined is appropriate is how or whether to factor in the prospect of more or stronger hurricanes because of rising ocean surface temperatures.

A hurricane loss projection model approved by the state Office of Insurance Regulation doesn’t do anything to take that into account, the company argues. Allstate’s loss models do.

“Many scientists believe that we are in a period of increased sea surface temperature, which they believe will cause an increased likelihood of hurricane formation,” Richardson told the committee. “Prudent business judgment dictates that this increased risk of hurricane formation should be taken into consideration in determining the appropriate rate for the risk being insured.”

Allstate’s model isn’t approved by state regulators, officials said. But Allstate officials said the law allows for such models to be used, as long as they are actuarially sound.

Some of Allstate officials’ responses did not please members of the panel.

“I haven’t seen so much bobbing and weaving since Muhammad Ali did the rope-a-dope,” said Sen. Bill Posey, R-Rockledge. “When we get the nebulous answers, it just gives me more questions.”

Florida regulators moved last month to suspend Allstate from writing any new policies. That’s because of a dispute over documents the state wants as part of its investigation into Allstate’s rates. State regulators claimed Allstate has been stonewalling them in their quest for answers, but the company says it is trying to comply with a subpoena for tens of thousands of documents.

An appeals court is considering the issue, but while the case is in the courts, Allstate is allowed to sell policies.

Allstate has about 200,000 policies in Florida.