Consumer advocates and collision industry representatives are watching with interest a case pending before the California Department of Insurance regarding how much Allstate can charge motorists for auto insurance policies.
Aside from the potential far-reaching impact involving policyholder costs relating to a sweeping insurance reform law passed by voters 20 years ago, there is controversy over whether Allstate has threatened to exit California’s auto insurance market should the state’s insurance commissioner rule against the company. An Allstate spokesman heatedly denies such comments were made, while consumer advocates point to transcribed testimony given by an Allstate expert witness at an official hearing.
The overall issue involves implementing the provisions of Proposition 103, an insurance reform measure approved by voters back in 1988. The intricacies behind introducing these “new” regulations are still being debated 20 years later.
Among other requirements, Prop. 103 prohibits insurers from charging excessive rates for their policies, especially because all California drivers are required to carry insurance coverage.
“It’s complex; we’re talking about a lot of factors,” says Jason Kimbrough, deputy press secretary to Steve Poizner, the state’s insurance commissioner who will ultimately rule on how much Allstate can charge for its auto policies.
The matter is currently under review by Administrative Law Judge Christopher R. Inama following a series of hearings that concluded in November. A professor of business law, economics and management at Golden State University, Inama is to make recommendations to Poizner based on how the hearing testimony applies to the Byzantine details of insurance law. Poizner will then decide whether to accept, reject or alter Inama’s conclusions, and Allstate will be compelled to comply.
In California, the insurance commissioner is a powerful elected position stemming from the dictates of Prop. 103. Rather than a bureaucratic stopover, it’s widely viewed as a springboard to higher political office. The most recent past-commissioner, John Garamendi, is now lieutenant governor under Arnold Schwarzenegger.
Department of Insurance staff lawyers and analysts prepare interpretations, opinions and disciplinary cases regarding all insurance regulatory and enforcement activity, submitting their arguments to the commissioner, who weighs what insurers and other parties have to say before making final decisions.
Citing the provisions of Prop. 103, Department of Insurance staffers are calling for Allstate to cut its current auto insurance rates by 18.8 percent, averaging about $150 annually per vehicle.
Allstate objects, saying it wants to reduce its rates by no more than 9 percent – “in the high single digits,” says Allstate spokesman Peter DeMarco, “which is a reasonable request.” Allstate’s renewal rate is nearly 90 percent, a sure signal that consumers are pleased with its performance, he says.
An 18.8 percent reduction “will significantly undercut the market,” DeMarco maintains.
“Allstate has been willing to take a rate reduction comparable to those of other major competitors,” he notes. “We would like to be treated equally.”
“Clearly we’re not seeing eye-to-eye,” says Kimbrough at the commissioner’s office. “The fact that Allstate is not doing it (accepting the recommended 18.8 percent reduction) speaks for itself. We just want to see the statutes applied fairly. This is part of the give-and-take process for auto rates.”
The Collision Repair Association of California (CRA) and the non-profit Foundation for Taxpayer and Consumer Rights (FTCR) are both enthusiastically backing the proposed 18.8 percent rate reduction.
Such savings would be beneficial for consumers, according to Allen Wood, the CRA’s executive director. “They’re making money hand-over-fist,” he says of Allstate’s current rate structure.
Wood goes on to reject Allstate’s contention that it can’t afford the 18.8 percent figure, pointing to the difficulties California collision repairers have experienced when seeking equitable reimbursement for covered jobs. “It’s certainly not because of the money they’re paying to shops,” he observes.
If Allstate loses the Poizner/Inama process and decides to exit the Golden State, “one of the other companies would pick up the slack,” Wood believes. “Various other insurance companies have made similar threats over the years” when faced with regulatory pressure, he adds, but “California is such a huge market for auto insurance” that few executives would dare pass it by.
It’s the fourth-largest insurance market on the planet, says Carmen Balber, a consumer advocate representative at the FTCR. “If Allstate were to decide to leave, the gap would be filled without a problem,” she notes.
Allstate is intimating that “we don’t want to play by your rules so we’re going to take our ball and go home,” Balber says. “The bigger picture here is that California has the strongest insurance regulations in the nation, and Allstate is challenging that system. The company is wildly profitable; it’s not a company in trouble.”
The insurer has no intention of abandoning the state where it is the third-largest auto policy provider, DeMarco contends. “Allstate is committed to serving the 2 million auto customers we have in California.” Terming the FTCR “background noise,” he says “they’re grasping at straws.”
An expert witness introducing testimony on behalf of Allstate, according to Balber, said a company facing too much of a rate decrease might opt to “reduce the quality of its services to a level lower than what it would have otherwise been, by having fewer offices in the state, advertising less vigorously, or reducing the quality of its claims processing. Ultimately, a company might choose to leave the state entirely if long-term prospects are sufficiently poor.”
“That raised alarm bells with us,” Balber recounts, citing Allstate’s decision to stop writing homeowner policies in the state in response to a similar dispute over rates.
“We’re not adding new homeowner policies,” DeMarco counters, stressing that existing accounts remain in effect. “Auto is different. We’re going to continue to provide the same level of service.”
“Allstate boasts of record profits to Wall Street, then comes to California claiming it’s not making enough money in order to charge its policyholders higher premiums,” says Todd Foreman, an FTCR lawyer. “Californians are required to buy auto insurance, so companies must be reined in when their rates would gouge their customers. Regulators can’t let Allstate bully its way to higher profits,” he insists.
Prior to the November hearing, Allstate withdrew a request to charge drivers an additional $15.5 million in premiums based upon its claims of “improving the customer experience,” Foreman reports. “The allegedly improved service efforts included the mailing of thank you cards and the distribution of ‘phone etiquette tips’ to company employees. In fact, Allstate’s own internal poll showed that the company has consistently fallen below the industry average for customer satisfaction since at least the year 2000,” he says.
“It was absurd that Allstate would ask California consumers to pay millions extra for alleged improvements to customer service. We called their bluff, and Allstate obviously realized that this argument had no chance in court, so they dropped the claim at the eleventh hour,” according to FTCR lawyer Daniel Y. Zohar.
“Proposition 103 requires that insurance companies prove that rates are high enough to pay claims, but not excessive. It does not permit insurance companies the right to overcharge customers to maintain mega-profitability,” Zohar says. “Yet all that Allstate is doing here is trying to reward Wall Street at the expense of Californians.”
