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Allstate Defends Rising Rates

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By JEROME R. STOCKFISCH, The Tampa Tribune

Published: February 5, 2008

Updated: 02/04/2008 09:34 pm

TALLAHASSEE - The head of Allstate Floridian pleaded poverty as the reason behind rising homeowners insurance rates on Monday, insisting the back-to-back four-storm seasons of 2004-05 nearly crippled the company and continue to squeeze its ability to cover claims.

But lawmakers digging into why rates continue to rise here didn't get much past that stance, with a Senate select committee hearing lengthy, highly technical and often undecipherable answers from Allstate executives in a daylong hearing that became increasingly testy.

"I haven't seen so much bobbing and weaving since Muhammad Ali did the rope-a-dope," Sen. Bill Posey, R-Rockledge, said at one point during the hearing at the state Capitol.

The Senate Select Committee on Property Insurance Accountability summoned executives from Allstate and Nationwide Insurance to testify under oath to try to determine why passage of House Bill 1A in a special session a year ago was not driving down rates. Representatives of Hartford, American Strategic and the Florida Farm Bureau are due before the panel today.

House Bill 1A, also known as the Insurance Industry Accountability and Consumer Protection Act, allowed insurers to obtain reinsurance at well-below-market rates.

Insurers had insisted that the cost of reinsurance, a backstop policy they buy in world markets to tap in the case of major catastrophes, was the key culprit in soaring homeowners' rates. In a special session in January 2007, lawmakers put the state on the hook for billions in reinsurance protection. The new law required insurers to pass their savings along to customers.

After the state presumed Allstate's rates would drop by an average of 14 percent statewide, the insurer filed for an average 42 percent increase. That request was withdrawn after the state Office of Insurance Regulation said it would deny it.

Allstate chief executive Joseph Richardson said his companies paid out close to $1 billion more in claims than it received in premiums in 2004 and 2005, exhausting the company's capital. The company would have been insolvent if not for an infusion of capital from its national corporate parent, he said.

Insurer Made 1% Profit In 2006

Allstate made a $4 million profit, or less than 1 percent on its business, in 2006 even though there were no storms, Richardson said. The company had an underwriting loss of $86 million through the first three quarters of 2007, he said.

Aside from dropping customers, he said, there are two ways to make sure an insurer can cover future claims: rebuild capital through adequate rates, or buy reinsurance. Allstate has been trying to do both, he said: asking the state for higher rates and buying additional reinsurance on top of what the state is offering.

"Because of Allstate Floridian's diminishing capital surplus, it faces the very real risk of being wiped out in the event of a bad hurricane season," Richardson said. "Allstate Floridian needs adequate rates to build its capital surplus and adequate levels of reinsurance to protect its customers."

Lawmakers focused intensely on Allstate's strategy of shifting from long-term storm modeling to the incorporation of a shorter-term component as the basis for its 2007 rate filing. Short-term storm models tend to forecast more severe activity, which could result in higher premiums for consumers.

State Sen. Jeff Atwater, R-Palm Beach Gardens, grilled Allstate vice president and modeling expert Bonnie Gill about a presentation she gave to fellow executives after the passage of House Bill 1A. A footnote to a PowerPoint presentation obtained by the state appeared to suggest accelerating the use of a new, shorter-term model if the result of the legislation was "negative," meaning it would lead to lower rates for homeowners.

Atwater said the word "jumped out" and wanted to know exactly what Allstate meant.

"Forgive me for not having complete recollection of this," Gill replied. "How I would depict that phrase is, the last thing that we would want to do ... If we truly had higher projected hurricane losses than what we had contemplated in the 2006 rate filing, and we were not to recognize that and instead take a rate decrease, we would further exacerbate a profitability problem that this company was experiencing. It behooves us to have all of the latest available information in order to properly depict what our rate need was. I believe that is what that footnote is about. We want to have the most accurate rate filing possible. If we're going to do a full-blown indicated rate calculation, we want to have the latest available models."

Senators Frustrated With Responses

It was typical of the executives' responses to detailed questioning, and by late afternoon, state senators' frustration was apparent.

Sen. Ronda Storms, R-Valrico, referred to Allstate executives' claims that the company was near insolvency. She asked Richardson for details of his annual salary, bonuses and stock options, but Richardson declined to reveal "confidential information."

Sen. Mike Fasano, R-New Port Richey, asked Richardson about Allstate's auto insurance in the state. He appeared flustered when Richardson said he could not comment on profitability of other lines.

"What is your title again?" Fasano asked. "You don't know whether you're making money on these other lines of insurance that you're selling right now in Florida? You don't know whether you're making a profit on auto insurance in this state?

In comparison, the appearance of Nationwide executives was tame. The company had been granted a 54 percent rate increase in March 2007, and it said its implementation of the House Bill 1A provisions would lower that increase to 21.3 percent.

Reporter Jerome R. Stockfisch can be reached at (813) 259-8402 or

jstockfisch@tampatrib.com.

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