Thursday, June 23, 2005

Allstate to hike homeowner premiums

Source: Palm Beach Post

A month after announcing it was dropping 95,000 Florida homeowner policies, Allstate Floridian said Wednesday it would hike annual home insurance premiums statewide by almost 30 percent on Aug. 15 — even though state insurance officials won't have completed their customary rate-hike review by then.

Insurers usually wait to implement premium increases until state officials complete a regulatory review, which typically takes two to three months.

But Allstate, the state's third-largest insurer, confirmed it is raising homeowner rates by 28.7 percent for about 641,000 customers statewide, including 44,174 in Palm Beach County, 9,180 in Martin County and 8,898 in St. Lucie County. Letters are being mailed to affected customers this week.

Although Allstate's plan is legal under Florida law, it is believed to be the first time since the end of last year's hurricane season that a carrier is going ahead with a homeowner rate hike before the state approves it.

Allstate's action angered one key legislator, Sen. Rudy Garcia, R-Hialeah, chairman of the Banking and Insurance Committee.

Garcia said this move undermines insurance reforms lawmakers passed in the recent legislative session. The new law requires insurers to hold public hearings when requesting rate hikes of 15 percent or more. Allstate will hold a hearing, but after at least some customers are billed at higher rates.

"It really became necessary to use this expedited method because we held off filing for a rate increase until after the past legislative session," Allstate spokesman Ryan Priest said.

"Doing this is critical to help us serve our customers during the current hurricane season and beyond."

Priest cited the high cost of raising capital needed to pay claims as a major reason for the rate hike.

Insurance Commissioner Kevin McCarty said in a statement: "I want to reassure Florida policyholders that Allstate's filing will be thoroughly reviewed. Furthermore, we will make sure that all statutes are strictly enforced."

If state insurance regulators eventually reject or trim the rate hike, Allstate will have to provide customers with refunds for overcharging them.

"We were aware they were going to file" for a rate hike, Valerie Beynon of the Office of Insurance Regulation said of Allstate. "We just didn't know the size."

Allstate paid $2 billion in property damage claims from Hurricanes Charley, Frances, Ivan and Jeanne, company officials said. That wiped out all of the profit the company accumulated since Hurricane Andrew struck Florida in 1992, they said.

During the legislative session that ended May 6, Allstate argued that it and other insurers were essentially broke and had no money to pay claims if necessary during the 2005 hurricane season that started June 1.

Allstate lobbied lawmakers for changes that would have made it easier for companies to tap the state's Hurricane Catastrophe Fund, a reinsurance fund the state created to help companies pay damage claims from big storms. While lawmakers did make some changes to the fund, they didn't go far enough to suit Allstate.

Allstate bought $1.6 billion worth of reinsurance — essentially insurance that covers insurance companies. The Florida company also has received a $375 million cash infusion from its Northbrook, Ill.-based parent.

"We have to ensure we can pay claims during the 2005 season and beyond, if necessary," Priest said.

Meanwhile, Allstate customers face either higher homeowner rates or policy terminations. Up to 4,500 homeowners in Palm Beach County soon will no longer be Allstate policyholders. The carrier will begin the first wave of the 95,000 policyholder cuts in August.

Allstate said it needs to drop homeowner policies to reduce its hurricane exposure to a more manageable level.

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