La. Rating Commission Rejects Key Rule Change for Allstate

December 18, 2006

A panel of state insurance regulators on Dec. 15 rejected a proposed rule change that Allstate Insurance Co. cites as critical to deciding the company’s long-term future in Louisiana after Hurricane Katrina.

The Louisiana Insurance Rating Commission voted 4-to-1 against Allstate’s request to charge policyholders a mandatory statewide 5 percent hurricane deductible upon renewal. Allstate policyholders currently have different options for deductibles.

Commission member Jabari Ragas said the mandatory deductible isn’t fair to homeowners in northern parts of the state.

“I would borderline be on board if it was (only) in the southernmost part of the state,” he added.

Christine Berry, the only commission member to support the proposed rule change, said she didn’t want to risk alienating Allstate. “We need Allstate here in Louisiana,” she said.

Allstate is dropping wind and hail coverage for nearly 20,000 policyholders in Louisiana next year, but the company has no plans to stop writing new homeowner policies here after Hurricane Katrina, an Allstate lawyer told commissioners before the vote.

Allstate regional counsel Lorrie Brouse said the company’s policy changes are designed to allow Allstate to “stay here and be financially strong.”

“These are not easy decisions to make, but we are doing what we can do given the parameters of Louisiana law,” she added.

After the commission’s vote, Brouse said members may be trying to “send a message” to lawmakers about the need for reforming the state’s insurance laws. However, she added, “These things do not make Louisiana a more attractive marketplace to come into.”

Commission members pressed Allstate to explain some of its proposed policy and rate changes in Louisiana, including its plan for a mandatory hurricane deductible and its dropping of wind and hail coverage.

Brouse said the company hasn’t been able to find private insurance brokers willing to pick up the slack. That could leave Louisiana Citizens Property Insurance Corp., the state’s insurer of last resort, responsible for covering wind and hail damage for those Allstate customers.

“It has never been our intent to leave the state,” Brouse said. “We are committed to the redevelopment of Louisiana, but we do have to manage probable (and) maximum loss like every other company that does business here.”

Commission member Joe Godchaux Jr. asked Brouse why Allstate is “willing to give up 20 percent of their policyholders.”

“I personally feel that they’re trying to get out of a big portion of the homeowner’s market,” Godchaux said after the hearing ended.

Commission member Barry Busada said state lawmakers must explore alternatives to rate increases as a means of keeping insurance companies from pulling out of Louisiana.

“The answer to every question we ask can’t be, ‘We’ve got to have a rate increase.’ That can’t be the only answer,” Busada said.

The commission approved a series of Allstate rate increases in April. Concerned about recent changes in Allstate’s policies, commission members asked Allstate officials to appear before them Friday to answer questions about its business plans for Louisiana.

Allstate is Louisiana’s second largest residential insurer with more than 200,000 customers. Only State Farm Insurance Co. writes more homeowner’s policies here.

The commission also tabled plans to raise commercial and homeowners rates for Citizens policyholders.

Citizens wants to raise its commercial property insurance rates by an average of 138.4 percent and its homeowners rates by an average of 31.7 percent.

But commission members balked at approving the rate hikes, opting to defer votes on both proposals. They clashed with Deputy Insurance Commissioner Chad Brown over the need for the rate hikes.

“You’re not planning for a next crisis other than raising rates,” Busada said. “I don’t see the planning going forward.”

Brown said the increases are long overdue and not linked to Katrina.

“If this rate increase is not approved, then you’re advocating not properly funding Citizens,” Brown added.

Commission member Steven Ruiz said the Legislature should overhaul Citizens before the commission votes to hike rates.

“We want the facts, and we don’t have the facts in front of us,” Ruiz said.

Commission members can take a final vote on the proposed rate increases at its next meeting, in January.

Citizens only has 1,230 commercial property policyholders, but that number could swell because St. Paul Travelers, the state’s largest commercial insurance provider, says it will not renew many commercial property insurance policies in the New Orleans area next year.

Chris Faser, a Citizens consultant, said a 138.4 percent increase is a bargain compared to other insurers’ commercial rates.

“Even if these rates are approved, we will still be at the bottom end of the marketplace,” he said.

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