Florida Regulator Cuts Off All Allstate Lines

Florida Insurance Commissioner Kevin McCarty turned up the heat today in his effort to make Allstate lower property coverage rates, revealing that his suspension of the insurer's license was being expanded to include all lines of insurance.

Mr. McCarty had said yesterday he was moving to revoke Allstate's right to do business conducted by three of its units that provide auto insurance, but today he issued an order that included all 10 of Allstate's Florida companies.

A spokesman for the commissioner e-mailed that “after further review with his legal staff, Commissioner McCarty determined that the better decision was to have the suspension apply to all of Allstate's new business.”

The commissioner, in announcing the initial suspension yesterday, said he was doing so because Allstate failed to come to a hearing he had called with all the information that his Office of Insurance Regulation [OIR] had demanded in a subpoena.

His order of suspension today revealed that the subpoena items sought “were carefully crafted by the Office to gather information related to Allstate's improper claims-handling processes and to assist the Office in assessing the extent to which Allstate is causing harm to Florida consumers.”

A key piece of evidence demanded is a report by McKinsey and Company, a New York-based consulting firm that–according to a report by J. Robert Hunter, insurance director of the Consumer Federation of America–led the company to adopt the Colossus computer program that results in reductions of bodily injury claims payments.

The consultant also reportedly advised the insurer that costs could be cut with a policy of aggressively denying them, delaying them and defending against them in court.

Mr. McCarty's order quoted part of the CFA report that said: “Any increase in profits that results from arbitrarily selected reductions in claims payments cannot be considered to be legitimate.”

A judge in Independence, Mo., has found Allstate in contempt for failing to provide the McKinsey report in an auto injury case, and has said they are liable for $25,000 a day in fines.

OIR's order said it is also seeking documents related to non-renewals, underwriting practices and claim-settlement practices, as well as Allstate's relationships with risk-modeling companies, insurance rating organizations, trade associations and reinsurance companies.

Under legislation passed last year, Florida's Hurricane Catastrophe Fund provided insurers with discount reinsurance, and Mr. McCarty and Gov. Charlie Crist have complained that the savings have not been passed on to homeowners.

Allstate Floridian Indemnity and Allstate Florida Insurance Company have requested rate increases of 28.3 percent and 41.9 percent, respectively. Encompass Floridian Indemnity requested a 38.4 percent increase, while Encompass Floridian Insurance Company requested a 39.7 percent increase.

Allstate said yesterday that the company is considering its options on how to react to the commissioner's order.

An Allstate spokesman, Adam Shores, has said that since OIR denied those requests, the company had withdrawn a petition to go to an administrative hearing so it could discuss a rate that would be adequate for the company and affordable for customers.

After the commissioner's latest action, he told the Associated Press: “We're in the business of protecting homes, protecting automobiles, and that's what we want to do because that's the role we play in this economy, in this marketplace, and we want to continue to do that.”

Regarding compliance with the subpoena, he said Allstate has “produced since mid-October over 40,000 pages of documents.” He said there have been 60 business days available to get the material together, amounting to 700 pages a day.

Mr. McCarty's order said the pages supplied were not what the subpoena had instructed, noting that the company sent 51 pages of “frivolous objections” saying the subpoena was a “fishing expedition” not related to a hearing on rates and the pass-along of reinsurance savings.

But, according to the commissioner's order, his investigation–which was the basis for calling a hearing–is not limited to issues concerning rates.

Standard & Poor's yesterday said his action would not affect Allstate's credit ratings, meanwhile Bank of America today said it was rating the stock neutral and that the commissioner's actions further deteriorates the health of the insurance market in that state, similar to that of the state's controversial catastrophe fund.

The National Association of Professional Allstate Agents issued a statement urging a resolution of the conflict. “Florida consumers will be left without an important choice when shopping for auto insurance,” the group said. “Further, we believe that those who will suffer most will be those individuals who care most about the consumers they serve–Allstate agents and the agency personnel they employ. They are the real victims of this tragic turn of events.”

This article updated 9:09 a.m., Jan. 18