Allstate seeks 41% rate hike
Allstate put in a request for rate hikes topping 40%, despite state-sponsored discount reinsurance.
Posted on Sat, Sep. 29, 2007
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BY RANDY DIAMOND
Palm Beach Post
Allstate Floridian Insurance Co. is seeking a 41.9 percent rate hike, an increase that would more than wipe out a 14.2 percent rate cut put into effect June 1 if approved.
Florida's fourth-largest homeowner insurer, which submitted the request to regulators Friday, is the latest in a string of requests to increase rates on homeowners policies. It joins USAA, which wants a 53.9 percent hike and Florida Farm Bureau, which seeks a 30.3 percent increase, as well other insurers seeking mammoth rate increases.
The requests have angered Gov. Charlie Crist and other state legislators. Lawmakers provided $12 billion dollars in discounted reinsurance -- insurance for insurance companies -- to insurers with the understanding they would pass savings on to consumers. The expanded fund was the centerpiece of the state legislature and the governor's homeowner insurance rate reduction plan approved last January.
Ultimately, that risk is passed on to insurance policyholders throughout Florida, who would have to pay surcharges if the fund was forced to pay claims for a major hurricane. The $28 billion fund, known as the Florida Hurricane Catastrophe Fund, has $28 billion in potential liabilities only $2 billion in assets.
All homeowner insurance companies in Florida must make filings with state insurance regulators by Monday showing their final costs of buying reinsurance. As of Friday, the majority of the state's insurers had not filed the ''true-ups,'' as they are called.
Many companies had reduced rates as of June 1 based on preliminary findings of the changes. Those cuts have averaged 12 percent, half of what state officials had predicted.
True up filings, such as the one Allstate filed Friday, threaten to wipe out even those small savings.
Allstate spokesman Adam Shores said the insurer is taking advantage of the state reinsurance fund but says the company still needs additional costly coverage from the global reinsurance marketplace to ensure it can pay claims in the event of a string of major catastrophic hurricanes.
''We want to be in a position to meet our promise for our customers,'' he said.
In its filing with the state, Allstate says it purchased $1.8 billion worth of reinsurance, which it estimated could pay claims for two 1-in-100-year hurricanes.
It was not immediately clear if Allstate had increased reinsurance purchases from last year. Shores could not provide specifics nor could insurance regulators.
The governor's special counsel, Chris Kise, attacked the proposed increase as excessive and unrealistic. ''Not since Noah has there been a castatrophe at the level Allstate is preparing for,'' he told The Miami Herald.
Florida Insurance Commissioner Kevin McCarty, like Crist, has been critical of other insurers who have filed for rate increases, charging that some of them have unnecessarily increased their purchase of reinsurance to drive rates up. McCarty was unavailable Friday.
Jonathan Kees, a spokesman for the state office of insurance regulation questioned the Allstate rate hike. He said regulators will give the filing an in-depth examination to make sure it complies with rate reductions mandated by state lawmakers.
''A 42 percent increase in rates does not appear to be in line with that objective,'' he said.
The increase cannot go into effect without the permission of the state regulators. State law requires a hearing for any increase over 15 percent.
Shores said Allstate Floridian has been under pressure from agencies that rate financial stability. Insurers have purchased additional reinsurance because of the rating agencies' views that insurers are facing increased hurricane risk. They also have questioned the viability of the state's hurricane catastrophe fund to pay claims after a catastrophic storm.
Allstate Floridian has about 300,000 policies. A smaller affiliate, Allstate Floridian Indemnity Co.is asking for 28.3 percent increase. It covers about 100,000 policies and reduced rates in June 13 percent.