Allstate Hit for Linking Fire Renewals to Separate Wind Policy in Miss.

July 26, 2007

Michael McAndrews would like to know what business Allstate has telling him he must buy wind and hail coverage — or else. McAndrews received a letter July 12 that said Allstate will not renew his homeowner’s coverage for fire and theft next year unless he offers proof that he has wind insurance from another carrier. McAndrews planned to self-insure for wind damage because he said the insurance costs too much through his only available source, the state wind pool.

“Maybe they’ll make us buy Shell gasoline next,” said McAndrews, who owns a home in Ocean Springs. “For me to have fire insurance I have to buy wind insurance? That makes no sense at all.”

Allstate spokesman Kate Hollcraft explained. “If a customer chooses to not take that protection, they are at more of a risk. And we have to manage our risk. The individual policyholders we have make up our total risk in an area. It’s just more responsible for us to protect as many of our customers as we can and to continue to educate our customers so they are protected completely rather than partially.”

J. Robert Hunter, who heads the Consumer Federation of America, offered a different explanation in a report the nonprofit group recently released. The report concludes that Allstate, the nation’s largest publicly traded property and casualty insurer, has led the industry in developing “anti-consumer insurance practices” designed to shortchange policyholders while fattening the bottom line.

The report details “unjustifiable” rate increases, tiered pricing that penalizes lower-income people and makes price comparison almost impossible, automated systems that reduce claim payments, policy clauses that take away coverage consumers thought was included, and allegations that Allstate and other insurers shifted Katrina losses to the federal flood insurance program.

“Allstate’s practices reflect the significant but not always highly visible changes that property-casualty insurers have made in recent years in the way they assess risk, set rates and manage claims,” Hunter wrote in a study summary. “The aftermath of Hurricane Katrina exposed the harmful effects of many of these changes on policyholders, especially lower-income and minority consumers.”

“We urge consumers to pay close attention to the concerns we have identified with Allstate’s practices before purchasing home and auto insurance from Allstate or renewing a policy.”

The study concludes the changes have paid off for insurers. From 1987 to 1996, Allstate paid out 73 percent of premiums collected as benefits, compared to only 59 percent from 1997 to 2006, a 19.2 percent decrease. The overall industry paid 65 percent from 1997 to 2006, the study said, a 7.1 percent decrease.

“Allstate’s goal is to attract the capital necessary to run the business and to remain financially strong so we can pay claims when our customers have losses,” spokeswoman April Eaton said. “To do this, we need a reasonable rate of return.”

Eaton said the company remains confident in its handling of Katrina claims and claims-handling practices in general. “We treat our customers fairly,” she said. “We work as quickly as we can to make sure we resolve every claim accurately and fairly.”

She said credit scores are one of many variables used to determine rates and Allstate is not the only company using them. And she said Allstate is proud of its “sophisticated” pricing system.

“It allows us to give our customers rates that more accurately reflect their risk,” she said.

As for McAndrews, he’s sent written complaints to his congressmen about Allstate’s demand. He also alerted the Mississippi Insurance Department, where he said an assistant to Commissioner George Dale told him that she also has received complaints from the elderly.

McAndrews said that he’s prepared to pay off the mortgage on his Ocean Springs home rather than buy wind coverage for $5,000 a year with a $2,500 deductible. He does, however, worry about those elderly folks on fixed incomes.

Dale and staff members did not return a telephone call Wednesday from the Sun Herald seeking comment about Allstate. Dale did say in an interview last week that he persuaded the insurer to continue providing h

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