N.J. Commissioner Rejects Allstate Agents’ Complaints about ‘Take All Comers’ Violations

New Jersey’s Banking and Insurance Commissioner, Holly C. Bakke, issued a bulletin indicating that Allstate’s marketing and agent compensation practices in the state do not violate a 1990 law requiring the state’s auto insurance companies to cover all but the worst drivers. 16 of the company’s agents had joined in filing a complaint about the practices.

“In her finding in the case of Corsaro, et al. vs. Allstate New Jersey, Commissioner Bakke found that the company’s marketing strategies, bonuses and office expense schedule were designed to ensure Allstate’s financial stability while serving drivers in all areas of New Jersey,” said the announcement.
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The complaint, filed in November 2001 and amended five times by the petitioners, charged the company with “a threshold violation of the Fair Automobile Insurance Act, (FAIRA), the law that created ‘Take All Comers’ as a means of depopulating New Jersey’s residual market.”

The bulletin noted that the law is often cited as a factor which contributes to auto insurers’ poor financial performance in the state, and that it was one of the principal factors in the decision by State Farm, New Jersey’s largest auto insurer, to decide to exit the market. The provision is scheduled to be phased out over a five-year period under new auto insurance reform legislation recently signed by Governor James McGreevey.

“The 16 agents alleged that Allstate sought to avoid urban business by linking bonuses and office expense compensation to loss ratios, by requiring agents to meet targets for selling other insurance products, and by moving some of the agents to new locations, which for some resulted in a loss of income. The petitioners also asserted Allstate marketing strategies, which targeted certain suburban areas and not urban areas, constituted a violation of FAIRA,” said the bulletin.

Commissioner Bakke disagreed with this position. She indicated that “the requirement to sell auto insurance to all eligible drivers does not prevent a company from developing a statewide business plan.” An earlier court ruling, known as the Gaydos decision, found “the legislative history is clear that the goal of FAIRA is to benefit New Jersey insureds, not insurance agents. We know from experience that a failure to balance urban auto business with suburban auto business results in carriers being unable to write any auto policies at all,” Bakke concluded.

The DOBI’s comprehensive investigation found no violations by Allstate’, and concluded in part that, although the company’s plan “saw a temporary drop in the number of urban auto policies,” the loss was subsequently regained. It added that “(Allstate New Jersey’s) fulfillment of its obligations under the UEZ Act and its Territorial Rating numbers are compelling proof that the results of its business plan and marketing approaches are consistent with the objectives of FAIRA.”

The report also noted that the DOBI’s investigation “showed that three relocated agents had worked in offices where massive episodes of fraud were discovered and co-workers prosecuted.” Bakke commented, “Certainly, policyholders benefit when insurers take action against fraud.”

She also addressed the allegations of petitioner Charles DiCataldo, who claimed he was fired due to heavy losses on the auto policies he sold. The findings state that while DiCataldo’s loss ratios were one element of his performance reviews by Allstate, his firing was the result of his failure to cooperate in Allstate programs designed to help agents meet certain sales and performance standards. “Nonetheless, I am directing Allstate to clarify to its agent force the criteria that can lead to termination based on performance,” Bakke stated.

In conclusion the announcement said the opinion had considered “numerous amendments and submissions by the petitioners after the case was referred to the Department in the fall of 2001,” before reaching its conclusions.

However, the bulletin continued, a letter dated February 2003 accuses Allstate of “redlining” in circumstances unrelated to the petitioners and will be examined separately. “Because of the importance of this issue, I am directing that the Department’s Consumer Protection Services unit to conduct a second examination immediately, as these allegations appear inconsistent with Allstate’s UEZ compliance,” Bakke stated.