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McCarty Shows Allstate All Wet On Rates

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The Tampa Tribune

Published: August 20, 2008

By asking the simple question "why" and refusing to back down until he got a reasonable answer, Florida Insurance Commissioner Kevin McCarty has saved customers of Allstate millions of dollars.
Allstate couldn't explain why it needed a requested rate increase of 43 percent for homeowner policies. Its argument that key rate-making documents were trade secrets didn't hold water.

In settling with McCarty, the Allstate parent company has agreed to pay a $5 million fine, cut rates by 5.6 percent, not ask for a rate increase for at least a year, forgive a $175 million loan to its Florida subsidiaries and write 100,000 more policies for Florida homeowners.

About the only thing McCarty didn't get was a "You're in good hands" T-shirt for every Florida taxpayer. It's a satisfying victory for consumers after a series of frustrating setbacks.

Insurers have used a few costly years of storms to try to justify enormous rate increases, even though the state is now helping provide back-up insurance. The state is helping insurers cover risks, so it should get a payback in the form of lower rates.

McCarty is right to stand firm against attempts by insurance companies and their consultants to base expected losses on short-term models.

"What's a five-year model tell you?" McCarty asks, then answers himself. "More storms."

A much longer view of Florida's storm experience gives a more accurate projection.

McCarty promises not to back down in his effort to make sure insurance companies follow state laws in setting rates. A big part of that process is documenting how the rates were determined.

In years ahead, the keys to lowering rates will be a string of quiet storm seasons, more storm-resistant buildings, vigorous competition in the insurance industry and a fair model for predicting losses.

And it doesn't hurt to have an insurance commissioner who's a bulldog.

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