Allstate’s Bad Faith Claim Practices and Rate Increases Are Being Investigated by Legislators and Regulators

Allstate continues to be investigated for bad faith claim handling practices, wrongful termination of policies and excessive rates. Regulators and the Florida legislators who grilled Allstate representatives earlier this week have discovered that Allstate terminated the homeowners’ policies of thousands of insureds who had their auto coverage with an insurer other than Allstate. Those seeking answers contend that Allstate has been less than candid. One Senator said, “I haven’t seen so much bobbin’ and weavin’ since Muhammad Ali did the rope-a-dope.” Listen here.

Why did Allstate cancel those folks, but not cancel similar Allstate insureds who also had Allstate automobile insurance? Because Allstate’s auto insurance business is far more profitable for Allstate than its property insurance business, particularly in Florida. In typical Allstate double-speak, however, Allstate claims to have done it for the convenience of the terminated insureds-that way the terminated insureds would not have to deal with two insurance companies. Allstate said, in effect, “we terminated your policy for your own good!”

Over the last couple of years, Allstate has reportedly reduced the number of homeowners’ policies it writes in Florida from over 700,000 to less than 300,000. Those insureds were supposedly cancelled because they were high risks for hurricane damage. Allstate also reduced its risk even further by buying cheap reinsurance from the fund the state created. Having culled those supposedly bad risks and shunted off a lot of the loss exposure via cheap reinsurance, Allstate still claims it needs a rate increase of 42%. Regulators and legislators want to know why.

Allstate is seeking that 42% increase in rates for homeowners’ coverage despite the fact that the Florida legislature last year created a $12 billion public hurricane catastrophe fund. The purpose of that fund was to make it much cheaper for property insurers like Allstate to avoid the risk of huge hurricane losses by buying reinsurance. The justification for that huge assumption of liability by the citizens of Florida was that insurers would then cut rates to those citizens. The law anticipated a rate reduction of 25%, but Allstate claims it needs to raise rates by 42%! Sounds like a fat deal for Allstate shareholders and a raw deal for the good citizens footing the bill for that reinsurance fund.

As we all know, insurance is supposed to be the business of spreading risk. More and more, however, insurers like Allstate want to avoid risk but still collect outsized premiums for covering the reduced risk.