N.Y. Regulators Question Allstate Motives

New York insurance regulators challenged Allstate's motives for reducing its exposure in the lower half of the state, asking if the company's plans had more to do with its push for a national catastrophe fund than with reallocating its risks.

Executives from Allstate spent close to an hour here last week defending the company's decision before a skeptical panel of regulators led by Insurance Superintendent Howard Mills, who called a public hearing on the status of New York's homeowners market.

Mr. Mills led a barrage of questions, asking the executives: "Is Allstate's action part of a political strategy to build for your 'Protect America' program?" He was referring to an initiative backed by the carrier to establish a federal reinsurance fund for natural disasters.

Edward T. Collins, managing counsel for the Northbrook, Ill.-based carrier, denied this was Allstate's motive. "We have no choice but to take these exposure management actions," he said.

The debate centered around the company's decision this year to begin nonrenewing some customers and stop writing new homeowners business in New York City, Westchester County and Long Island.

What perplexed the superintendent was that up until its cutback announcement, the company had aggressively pursued expanding its presence throughout the state, up to its current 26 percent marketshare.

"Why is it now you are taking this draconian and drastic action?" asked Mr. Mills.

Mr. Collins said the company's action was a measured response to its risk exposure in light of this past year's hurricanes and evidence that the annual hurricane season is only going to get worse.

Brian Pozzi, Allstate's regional counsel for New York, noted that while the state has not been hit by a hurricane in years, it is only a matter of time before it does happen.

"This is not a number we are comfortable with," he said, referring to the company's current New York marketshare. "This is a step we are not taking lightly."

However, the assertions did not placate other New York regulators on the panel.

"Did [Allstate] hit the snooze alarm?" asked Mark Presser, assistant deputy superintendent, who wondered why, while other companies managed their growth, apparently Allstate did not--calling the company's actions "irresponsible, if nothing else."

The Allstate executives pledged the company would work to give current policyholders a soft landing and help them find other carriers through Allstate agents, and to limit nonrenewals to no more than 4 percent of the total market in any given year, by statute.

However, whether the state's market is in a position to absorb that many policyholders was open to question.

Others who gave testimony said the current market is healthy, and at this time appears to be absorbing new customers.

However, two leading New York producers--Mark Hagan, chairman of the Independent Insurance Agents and Brokers of New York, and George Yates, who heads the group's public policy committee--disputed the observations. They said that while there may be absorption of policyholders today, come June when many policies begin coming up for renewal, it will be a different issue.

Mr. Yates said that while Allstate commits to a book reduction of no more than 4 percent, the fact that it will not be writing new policies for homes being sold raises the effective retrenchment rate. He said the company's 900,000 policies in force translates into about 80,000 policies that would have to be absorbed by the market.

"We are not sure there is enough capacity," said Mr. Yates, calling Allstate's action dangerous from a capacity standpoint.

Stephen Ruchman, an agent from Long Island and past president of the Professional Insurance Agents of New York, said that he, like Mr. Yates, was mainly concerned about policyholders who live near the water, and urged the regulators to closely scrutinize Allstate's moves to "keep it from destabilizing the market."

If Allstate was looking for universal support from other carriers for its national catastrophe plan, it was sorely disappointed.

Meryl Golden, senior vice president for personal markets at Liberty Mutual, testified that the company is opposed to any national catastrophe plan. She said Liberty Mutual believes private market mechanisms can best deal with such issues. In addition, she said a national catastrophe fund would encourage lower building standards and more development in high-risk areas because there would be no marketplace incentives to mitigate the risks.

She was joined in opposition to the idea by Jeffrey R. Barrett, senior vice president for regional carrier New York Central Mutual Fire Insurance Company, and Gary Henning, senior vice president of the American Insurance Association.