By PURVA PATEL - Copyright 2007 Houston Chronicle - Oct. 25, 2007
Allstate Texas Lloyds factored in excessive profits and costs into its latest rate increase imposed on Texas homeowners, regulators allege in an order demanding refunds.
Those are just two on a list of concerns the Texas Department of Insurance has with the way the company justifies its rates.
But for the state's insurance consumer advocate, they are the two most significant — the company's targeted profit and cost of reinsurance, or the coverage it buys to help pay for claims after a catastrophe.
In August, Allstate implemented a flat 5.9 percent increase statewide and an additional average 2.1 percent bump for homeowners in some coastal and near-coastal counties upon renewal.
Regulators then issued an order halting the hike, but Allstate obtained a judge's ruling blocking the state from preventing the increase.
Allstate is preparing to fight the refund order at an administrative law judge hearing scheduled for Dec. 3 in Austin.
"We are confident in the number, and we believe it puts us in a good place and a responsible place for our customers," said Bill Mellander, a spokesman for the insurer. "We would not have implemented these rates if we didn't believe them to be justified, competitive and strong from a consumer perspective."
A spokesman for the department declined to comment on the refund order's specifics.
"We look forward to debating the merits of the rates themselves," said Jerry Hagins, a spokesman for the department.
Various costs
The Insurance Department examines how a company factors various costs and potential profits into its rates to determine if the rates are justified.
One of the more significant factors mentioned in the refund order is Allstate's profit provision, or how much of its collected premiums the company hopes to have left over after paying out losses and expenses, said Rod Bordelon, head of the Office of Public Insurance Counsel, who represents consumers at rate hearings.
The company has a target of 10.4 percent.
"In our view it's grossly too high," Bordelon said.
His office hasn't determined exactly what it should be, he said, but will after it gets more information from the company. He says it's the highest profit provision he's ever seen a Texas home insurer use.
Bordelon notes that profit targets are subjective and companies that take on more risk may expect more of a profit.
"Homeowners is fairly risky, but it doesn't result in huge differences among companies," he said, adding that Allstate has some exposure to risky parts of Texas but is also spread out all over the state and has cut back coverage in some areas, which mitigates some of the riskiness in their business.
Mellander said 10.4 percent is not unusual. He declined to say if this is the first time Allstate has used a profit provision of more than 10 percent for homeowners insurance in Texas.
"Define reasonable," he said. "It's frustrating to see anyone out there making these blanket statements. Well, what's a reasonable profit and what qualifies them to say it's reasonable?"
He also said that if Allstate hadn't pulled back on some of the coverage it offers in Texas, its rates would potentially be even higher.
Balancing act
Insurance companies, especially those that are public, have to play a delicate balancing act, said Craig Weber, a senior analyst with consulting company Celent. Allstate Texas Lloyds is subsidiary of its parent, Allstate Corp.
"I'm sure if I'm an Allstate shareholder, I'm anxious for them to be profitable and keep the stock price healthy," Weber said. "As an Allstate customer, I would want them to keep the rates affordable. They serve many masters."
Allstate Texas Lloyds has about 600,000 home policyholders in Texas and collected $719 million in premiums in 2006.
Reinsurance questioned
Regulators also claim Allstate's estimate of its net cost of reinsurance is too high. The net cost is the actual cost of the coverage, $82.4 million, minus the amount it expects to recover from a reinsurer after a catastrophe, $38.4 million, according to the company's filing.
That cost is usually passed on to consumers as part of their insurance rates.
In the refund order, regulators also note concerns raised by Bordelon's office, such as whether Allstate needs reinsurance, or so much, since the company has reduced its exposure and whether consumers should have to bear the costs for the reinsurance at all.
Allstate stopped writing new homeowners business in some Texas coastal areas in March 2006 and later stopped renewing windstorm coverage for policyholders along the coast.
Allstate says its estimate net cost of reinsurance of $44 million is accurate and that it doesn't pass on all the costs of the coverage to consumers. Mellander declined to say what percent of the cost the company retains.
Without reinsurance, the company's rates could be higher, he said.
"It allows us to assume a little more risk, take on a little more coverage, and it allows us to manage the costs passed on to consumers," he said.
Showing posts with label Allstate Insurance. Show all posts
Showing posts with label Allstate Insurance. Show all posts
Thursday, October 25, 2007
Wednesday, October 24, 2007
Court upholds Allstate homeowner insurance increase - State's attempt to roll back 5.9% rate hike is rejected
By Texas Watch - Oct. 18,2007
State's attempt to roll back 5.9% rate hike is rejected Court upholds Allstate homeowner insurance increase
By CHRISTY HOPPE - The Dallas Morning News - Oct. 18, 2007
AUSTIN – Allstate Insurance can continue to charge a 5.9 percent rate increase that it imposed on homeowner policies in August after a court threw out the state's attempt to roll back the increase.
Allstate maintained that its rate increase followed state law and that the Texas Department of Insurance acted improperly in trying to nullify it. A state district judge in Travis County agreed and issued an order Monday evening.
Bill Mellander, a spokesman for Allstate, said the insurer had been certain the judge would affirm that the increase was implemented correctly.
"We are equally as confident that the rate itself is competitive, justified and, more importantly, that it is attractive and good for the consumer," Mr. Mellander said.
Insurance Department spokesman Jerry Hagins said the agency is disappointed in the judge's ruling but stands by its decision that the new rate is excessive. The agency will continue to pursue an order requiring Allstate to roll back its rates and give refunds to customers.
At issue is the state's "file and use" law, which largely has unregulated insurance rates. As envisioned by lawmakers, insurance companies can file notice of new rates with the state insurance agency but don't have to wait for the regulatory process before using the new charges.
If the state found the new rates to be excessive, the insurance agency could order them rolled back and the insurer would reimburse its policyholders.
In Allstate's case, the company already is in court over a 2004 rate hike, fighting the state's contention that it overcharged its policyholders $56 million and owes them a refund.
When it filed the rate hike in August, the charges took effect immediately, but the state fought the increase, saying it disapproved of the new amount. The judge said Allstate followed the law.
"This says that the file-and-use system is broken," said Alex Winslow, executive director of Texas Watch, a consumer-advocacy group.
He said that if history is a guide, the state will again find new rates excessive and Allstate will go to court and fight any refunds.
"I don't think Allstate policyholders should be holding their breath," Mr. Winslow said.
The state's largest home insurer, State Farm, has been fighting a customer refund in the courts since 2003.
With the rate hikes effective immediately, the state has to play catch-up to determine whether the rate is unjustified.
"The bottom line is that Allstate is driving a huge truck through a loophole in the law, and I have no doubt that other insurance companies are cranking up their engines as we speak," Mr. Winslow said.
Staff writer Karen Brooks contributed to this report.
Read more in the Dallas Morning News
Travis County District Judge Margaret Cooper has ruled that a loophole in state law allows Allstate to continue charging its policyholders a rate that the insurance department deems excessive. Texas Watch points to this as an example of how Texas's current system of insurance industry oversight is broken and is calling on lawmakers to give the insurance commissioner the authority to approve rates before - not after - they are imposed on Texas homeowners.
State's attempt to roll back 5.9% rate hike is rejected Court upholds Allstate homeowner insurance increase
By CHRISTY HOPPE - The Dallas Morning News - Oct. 18, 2007
AUSTIN – Allstate Insurance can continue to charge a 5.9 percent rate increase that it imposed on homeowner policies in August after a court threw out the state's attempt to roll back the increase.
Allstate maintained that its rate increase followed state law and that the Texas Department of Insurance acted improperly in trying to nullify it. A state district judge in Travis County agreed and issued an order Monday evening.
Bill Mellander, a spokesman for Allstate, said the insurer had been certain the judge would affirm that the increase was implemented correctly.
"We are equally as confident that the rate itself is competitive, justified and, more importantly, that it is attractive and good for the consumer," Mr. Mellander said.
Insurance Department spokesman Jerry Hagins said the agency is disappointed in the judge's ruling but stands by its decision that the new rate is excessive. The agency will continue to pursue an order requiring Allstate to roll back its rates and give refunds to customers.
At issue is the state's "file and use" law, which largely has unregulated insurance rates. As envisioned by lawmakers, insurance companies can file notice of new rates with the state insurance agency but don't have to wait for the regulatory process before using the new charges.
If the state found the new rates to be excessive, the insurance agency could order them rolled back and the insurer would reimburse its policyholders.
In Allstate's case, the company already is in court over a 2004 rate hike, fighting the state's contention that it overcharged its policyholders $56 million and owes them a refund.
When it filed the rate hike in August, the charges took effect immediately, but the state fought the increase, saying it disapproved of the new amount. The judge said Allstate followed the law.
"This says that the file-and-use system is broken," said Alex Winslow, executive director of Texas Watch, a consumer-advocacy group.
He said that if history is a guide, the state will again find new rates excessive and Allstate will go to court and fight any refunds.
"I don't think Allstate policyholders should be holding their breath," Mr. Winslow said.
The state's largest home insurer, State Farm, has been fighting a customer refund in the courts since 2003.
With the rate hikes effective immediately, the state has to play catch-up to determine whether the rate is unjustified.
"The bottom line is that Allstate is driving a huge truck through a loophole in the law, and I have no doubt that other insurance companies are cranking up their engines as we speak," Mr. Winslow said.
Staff writer Karen Brooks contributed to this report.
Read more in the Dallas Morning News
Thursday, August 23, 2007
Texas Watch urges: Take Action Today to End Insurance Overcharging
Texas Watch - August 23, 2007
Because of public pressure by Texas Watch, our activists, and other citizens, Insurance Commissioner Mike Geeslin recently rejected a proposed rate increase of 5.9 percent by Allstate.
The commissioner also ordered the company to submit any further rate changes to the Texas Department of Insurance before they could take effect.
This is a good first step, but we must keep the pressure on. Write Commissioner Geeslin today and tell him end the insurance industry practice of overcharging policyholders once and for all by
- Conducting a comprehensive review of Texas insurance rates;
- Identifying companies that are overcharging their policyholders; and
- Forcing the offending companies to reduce rates and refund overcharges to policyholders.
Commissioner Geeslin has the power to stop overcharges, once and for all. Make sure he knows where you stand on this issue by writing him today.
Because of public pressure by Texas Watch, our activists, and other citizens, Insurance Commissioner Mike Geeslin recently rejected a proposed rate increase of 5.9 percent by Allstate.
The commissioner also ordered the company to submit any further rate changes to the Texas Department of Insurance before they could take effect.
This is a good first step, but we must keep the pressure on. Write Commissioner Geeslin today and tell him end the insurance industry practice of overcharging policyholders once and for all by
- Conducting a comprehensive review of Texas insurance rates;
- Identifying companies that are overcharging their policyholders; and
- Forcing the offending companies to reduce rates and refund overcharges to policyholders.
Commissioner Geeslin has the power to stop overcharges, once and for all. Make sure he knows where you stand on this issue by writing him today.
Tuesday, July 17, 2007
Farmers Insurance backs off rate hike plan
State was set to reject company's 6.6 percent hike for homeowners
By TERRENCE STUTZ - The Dallas Morning News- Tuesday, July 17, 2007
AUSTIN – Farmers Insurance withdrew a proposed 6.6 percent statewide increase in homeowners rates on Monday after the Texas Department of Insurance signaled that it would reject the proposal.
A spokesman for the insurance department said the agency was poised to oppose the rate plan when Farmers decided to pull it back, canceling a premium increase that was supposed to be effective on Monday.
Agency spokesman Ben Gonzales said state actuaries were concerned about the wide variation of rates in the plan – ranging from a 50 percent increase along the Texas coast to a 10 percent decrease for some customers in North Texas – as well as recent trends indicating the company's current rates are adequate.
"It was clear that we would disapprove the filing as it was written," said Mr. Gonzales, noting that it was "a lot simpler for them to withdraw the filing than to move forward" on a plan that was opposed by the state.
Under the current file-and-use law, Farmers is allowed to raise rates once it has notified the insurance department, but the company is subject to a rate rollback – and refunds – if the commissioner of insurance determines the increases are not warranted. An insurer also has to pay interest on any refunds.
Not giving up
Michelle Levy, a spokeswoman for Farmers, said that while the proposal was pulled back, the company still believes it needs to adjust its rates and is working on an alternate plan.
"They had questions about our filing, so we're working with them to answer their questions and we expect to refile a proposal within 30 to 60 days," she said.
Mr. Gonzales said state actuaries had reservations about charging homeowners in certain parts of the state so much more for their policies.
"The increases are heavily weighted toward the coast, which may be appropriate because of the risks. But we need to see more documentation," he said.
He also cited concerns about the company's loss ratios over the past year, which indicated healthy profits. Farmers' primary home insurance subsidiary in Texas had a loss ratio of 35.5 percent in 2006, close to the statewide average of 34 percent for all companies.
In other words, Farmers paid out 35.5 percent of premiums it collected to cover property losses – a relatively low percentage. A loss ratio of 58 percent is often cited by experts as a good benchmark for profitability.
The other two subsidiaries of Farmers – the third largest home insurer in Texas – had similar percentages.
An actuary with the insurance department also said some of the expenses cited by the company in its rate filing appeared excessive.
Allstate's proposal
Allstate Insurance, the second largest home insurer, also has filed a rate increase with the state that would raise the average cost of its policies by 6.9 percent. Unlike the Farmers proposal, Allstate wants to increase rates in all areas of the state.
Mr. Gonzales said the Allstate proposal – which is supposed to go into effect on July 26 – is still being reviewed by the insurance department actuaries.
"There is no indication yet of which way we will go," he said of the Allstate proposal.
Leading consumer groups have sharply criticized the actions of the two companies for raising their rates at a time when industry profits are soaring.
"If this [rate plan withdrawal] results in real reductions for homeowners, it is good news. If this is just more posturing on the part of the company and the insurance department, then it is par for the course," Alex Winslow of Texas Watch, a consumer group active in insurance issues.
"Homeowners are relying on the insurance department to do its job and make sure that premiums come down once and for all," he said.
Read more
By TERRENCE STUTZ - The Dallas Morning News- Tuesday, July 17, 2007
AUSTIN – Farmers Insurance withdrew a proposed 6.6 percent statewide increase in homeowners rates on Monday after the Texas Department of Insurance signaled that it would reject the proposal.
A spokesman for the insurance department said the agency was poised to oppose the rate plan when Farmers decided to pull it back, canceling a premium increase that was supposed to be effective on Monday.
Agency spokesman Ben Gonzales said state actuaries were concerned about the wide variation of rates in the plan – ranging from a 50 percent increase along the Texas coast to a 10 percent decrease for some customers in North Texas – as well as recent trends indicating the company's current rates are adequate.
"It was clear that we would disapprove the filing as it was written," said Mr. Gonzales, noting that it was "a lot simpler for them to withdraw the filing than to move forward" on a plan that was opposed by the state.
Under the current file-and-use law, Farmers is allowed to raise rates once it has notified the insurance department, but the company is subject to a rate rollback – and refunds – if the commissioner of insurance determines the increases are not warranted. An insurer also has to pay interest on any refunds.
Not giving up
Michelle Levy, a spokeswoman for Farmers, said that while the proposal was pulled back, the company still believes it needs to adjust its rates and is working on an alternate plan.
"They had questions about our filing, so we're working with them to answer their questions and we expect to refile a proposal within 30 to 60 days," she said.
Mr. Gonzales said state actuaries had reservations about charging homeowners in certain parts of the state so much more for their policies.
"The increases are heavily weighted toward the coast, which may be appropriate because of the risks. But we need to see more documentation," he said.
He also cited concerns about the company's loss ratios over the past year, which indicated healthy profits. Farmers' primary home insurance subsidiary in Texas had a loss ratio of 35.5 percent in 2006, close to the statewide average of 34 percent for all companies.
In other words, Farmers paid out 35.5 percent of premiums it collected to cover property losses – a relatively low percentage. A loss ratio of 58 percent is often cited by experts as a good benchmark for profitability.
The other two subsidiaries of Farmers – the third largest home insurer in Texas – had similar percentages.
An actuary with the insurance department also said some of the expenses cited by the company in its rate filing appeared excessive.
Allstate's proposal
Allstate Insurance, the second largest home insurer, also has filed a rate increase with the state that would raise the average cost of its policies by 6.9 percent. Unlike the Farmers proposal, Allstate wants to increase rates in all areas of the state.
Mr. Gonzales said the Allstate proposal – which is supposed to go into effect on July 26 – is still being reviewed by the insurance department actuaries.
"There is no indication yet of which way we will go," he said of the Allstate proposal.
Leading consumer groups have sharply criticized the actions of the two companies for raising their rates at a time when industry profits are soaring.
"If this [rate plan withdrawal] results in real reductions for homeowners, it is good news. If this is just more posturing on the part of the company and the insurance department, then it is par for the course," Alex Winslow of Texas Watch, a consumer group active in insurance issues.
"Homeowners are relying on the insurance department to do its job and make sure that premiums come down once and for all," he said.
Read more
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