Here's the take-away message from the stunning settlement struck between Allstate Corp. and Florida insurance regulators: Getting tough works. It is why Allstate, the state's fourth-largest property insurer, went from claiming it needed a 42 percent rate hike in homeowners insurance to agreeing to a 5.6 percent premium reduction.
It is why Allstate went from dropping nearly half a million Florida homeowners policies over the past five years to agreeing to add 100,000 policies within three years — 50,000 basic homeowners policies and another 50,000 policies for condominiums and renters.
It is why Insurance Commissioner Kevin McCarty finally started getting cooperation from Allstate in making documents and witnesses available so his office could examine more closely the company's reinsurance program and other aspects of its business.
Many Floridians have seen their homeowners insurance rates double and double again in recent years. And many have been unceremoniously dumped by big-name insurance companies they had loyally patronized for years. All this has made Floridians angry, particularly when they learned that while they were struggling to afford insurance, some of the nation's biggest carriers were enjoying huge profits, including Allstate, which posted a $4.6-billion profit last year.
Refreshingly, rather than scrape and bow before the insurance industry, as has been the state's practice, we now have a chief insurance regulator who is willing to go toe-to-toe and a governor who backs him up and cheers him on.
McCarty and Allstate first tangled last fall when the insurance giant requested a 42 percent premium hike. It was an outrageous request in light of the state's moves to make reinsurance costs cheaper, and the request was promptly rejected. But as regulators attempted to fully review Allstate's rate-setting and other business practices, they found that the company was thwarting their efforts.
In response, McCarty brought the full power of his office to bear and ordered a suspension of Allstate's ability to write new business in Florida, including lucrative auto insurance policies. After a lawsuit that Allstate lost, the insurance carrier promised to cooperate more fully and the suspension was lifted after only a day.
But that didn't end things. In February, McCarty filed an administrative complaint against Allstate. The corporation faced a hearing in September on allegations that it failed to comply with subpoenas, had falsely marked documents as trade secrets and had falsely certified that its chief executive officer had reviewed its rate filing.
The deal obtained by McCarty is a settlement of this complaint. In addition to the rate cut and added homeowner policies, it includes a $5-million fine and an agreement by the parent company to forgive a loan of $175-million to Allstate Floridian that was used to pay 2005 hurricane claims. Clearly, Allstate wanted to avoid the hearing and even harsher penalties.
Meanwhile, regulators will continue investigating Allstate's reinsurance program, in which Allstate's Florida companies bought reinsurance from the parent, and its relationships with risk-modeling companies that predict exorbitant storm-cost estimates. A careful analysis of these and other Allstate associations will illuminate whether rate-setting is an honest process or one manipulated through cozy relationships.
Congratulations are in order for McCarty and Gov. Charlie Crist. It isn't often that a state taking on an insurance giant scores such a complete win. May there be more.