Good Hands Turn to Boxing Gloves When Regulators Question Allstate’s Rate Increases

Have you ever felt like insurance rates hardly ever go down, even when the insurance industry makes record profits? Funny you should feel that way. Two current news items may help explain why. Both involve attempts by Allstate Insurance companies to obtain very large rate increases.

The first occurred in Florida. Allstate submitted proposed rate increases for various Allstate companies that would have increased rates by a whopping 28 to 42 percent. Insurance regulators denied the rate applications and Allstate appealed. At the beginning of the appeal hearing, Allstate withdrew its applications for the huge rate increases. The Office of Insurance Regulation had subpoenaed many documents for the hearing, but Allstate failed to provide them. After half a day, the Insurance Commissioner cancelled the hearing to consider sanctions against Allstate.

Inquiring minds would ask: Why would an insurance company withdraw its request for such huge rate increases if they were truly justified by the actual loss experience? If the loss experience was that bad, wouldn’t the insurance company need those increases to stay in business? Wouldn’t the insurer fight for those necessary rate increases? Some in Florida must have been asking those same questions, as the state Senate immediately announced it would require Allstate to attend hearings and testify.

Despite beating a hasty retreat by withdrawing its rate filing, Allstate said it was happy to be at the division of insurance hearing. Employing a tactic familiar to lawyers who have handled bad faith cases against Allstate, the company also touted that it had produced thousands of documents. To the contrary, state officials responded that the documents Allstate provided were irrelevant and not the important documents they had requested. Lawyers experienced in bad faith cases against Allstate were not surprised that Allstate crowed about the thousands of unresponsive documents it had produced, since insureds suing Allstate for bad faith see these same tactics repeatedly.

The subpoena by the Florida insurance regulators listed many of the very same documents that lawyers of the Alaska Personal Injury Law Group have been trying to get from Allstate. Mr. O’Donnell and I are counsel in a class action against Allstate alleging various forms of fraud and bad faith claim handling. That case is focused in part on the Allstate claim handling program called Claim Core Process Redesign (CCPR) implemented by Allstate in 1995. Allstate itself described this as a “radical” change in the traditional claim handling handling process. Many lawsuits have been filed claiming that the system systematically underpays claims. An integral part of CCPR is the use of Colossus, a computer program that Allstate can “tune” to produce reduced claim evaluations. In categories 39 through 50, Florida insurance regulators are trying to get these same documents about CCPR and Colossus from Allstate.

The second curious rate application occurred in California, where Allstate sought a 9.3% increase in homeowners insurance rates, based on the assertion that Allstate had invested $82 million in low income housing in inner cities and rural areas. Bet you didn’t think an insurer could increase your rates based on an investment that had nothing to do with the actual loss experience and actual loss ratio on the coverage. In contrast to Allstate’s request for this hefty rate increase, its major competitors actually lowered their rates by up to 20%.

How do these rate matters from Florida and California apply to Alaska?

How do these rate matters from Florida and California apply to Alaska? First, they show how hard it is for insurance regulators to get the information they need to truly evaluate a rate application. Bear in mind that the insurance divisions of most states have very few actuaries on staff to evaluate insurance company filings for rate increases. Some states do not have a single actuary on staff. Second, the Alaska Legislature passed a law in 2005 that makes it even easier for insurance companies to get rate increases without any review. AS 21.39.210 implemented what it calls “Flex-rating.” Under this scheme, an insurer may increase rates in Alaska without prior approval of the Division of Insurance so long as the increase is not more than ten percent when compared to the immediately preceding twelve months. Giving insurance companies this power to increase rates in Alaska without any prior approval does not seem like good public policy to me, especially in light of the rate fiascos in Florida and California. But my efforts to convince Alaska legislators this was a bad idea were ignored when this law was passed.

Sources
Florida Insurance Commissioner Stops Allstate Hearing

Allstate Seeks 9.3 Percent Hike in Home Rates