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Updated: Apr 27th, 2012 - 19:32:49 |
INSURANCE COMMISSIONER JOHN GARAMENDI ANNOUNCES $30 MILLION SETTLEMENT WITH ALLSTATE INSURANCE; AS MANY AS 250,000 POLICIES COULD QUALIFY FOR RETURN OF PREMIUMS OR CREDITS ON FUTURE PREMIUM BILLS
Allstate Also Agrees to a $4 million Fine -- One of the Largest Fines in Department History
LOS ANGELES – Insurance Commissioner John Garamendi announced today that he and Allstate Insurance Company have reached a settlement by which the nation’s second largest property and casualty insurer has agreed to provide more than $30 million in policy credits and premium returns to eligible California policyholders.
The Commissioner also announced that as part of the settlement Allstate will pay a $4 million fine. The fine addresses issues that arose from a 2002 examination of Allstate’s handling of its auto and homeowners policies, as well as its use of credit scoring.
“The insurance consumers of California deserve to be treated fairly by their insurers,” said Commissioner Garamendi. “This settlement and fine send a strong message to other insurers that this Department will aggressively pursue all allegations of injustice to policyholders.”
The settlement resolves issues stemming from a number of practices that arose during the Department’s investigation, which covered the period between January 1, 2000 and April 12, 2002. The allegations include:
· Allstate's use of “Financial Stability” criteria, a form of credit scoring, to underwrite property coverage, resulting in the placement of some consumers in a program with higher rates;
· Allstate's failure to charge the lowest premium for which the policyholder qualified upon renewal;
· Allstate’s use of prior renters coverage resulted in the placement of some consumers in programs with higher rates;
· Allstate’s failure to provide its Home and Auto discount to policyholders whose auto policies were written in Allstate Property and Casualty Insurance Company;
· Allstate's failure to assign the lowest filed rate for all driver-related factors on policies with excess vehicles (i.e. policies with more vehicles than drivers).
According to the settlement, some policyholders will receive credits on upcoming premium bills, while others will have premiums returned in the form of a check. Allstate has also agreed to review its claims handling practices and take certain corrective actions with regard to the 2003 Southern California Wildfires, although none of the premium returns or credits is related to the Wildfires.
These actions include:
· Reviewing its processes for handling contents claims to address and resolve any processes that are duplicative;
· Addressing and resolving any processes or procedures that may confuse customers by having multiple adjusters handle a particular file;
· Making changes or enhancements to new business underwriting practices that will allow for an identifiable record of the basis upon which a home’s replacement cost estimate was made;
· Changing underwriting practices so that the replacement cost estimation program used in the homeowner business is the same program used for Allstate Landlord Property Policies;
· Reviewing those files related to the Southern California wildfires where Allstate or the CDI has received complaints regarding the Additional Living Expense (ALE);
· Proceeding with mediations on those Southern California wildfire cases for which the CDI contends Allstate provided an agreement to mediate under the CDI’s voluntary mediation program.
“This is a good day for Allstate policyholders,” said Commissioner Garamendi. “Because of this settlement more than $30 million in premiums that were wrongfully charged to consumers will be returned. This has a real impact on policyholders, who will feel it where it counts the most – in their own wallets.”
Allstate will contact affected policyholders directly. The company has established an “800“ number phone line for affected policyholders. It is 1-800-351-0646.
# # #
Los Angeles Times: Allstate to Settle Rate Claims
The insurer will pay a state fine and repay $30 million to clients who may have been overcharged. It admits no wrongdoing.
By Kathy M. Kristof
Times Staff Writer
June 27, 2005
Allstate Insurance Co. has agreed to pay $30 million to an estimated 250,000 Californians who were allegedly overcharged for auto and homeowner policies, in a settlement expected to be announced today.
The company, though not admitting wrongdoing, also has agreed to pay a $4-million fine to the state Insurance Department.
Allstate violated California insurance rules by partially basing its rates on consumer credit scores and by failing to give available discounts to qualified drivers and homeowners, Insurance Commissioner John Garamendi said.
"Insurance companies have to tell us what discounts they are going to use and how they are going to price their products," Garamendi said. "In this case, Allstate was not following their own rules — and violating some of the department's rules."
The insurer, a subsidiary of Northbrook, Ill.-based Allstate Corp., agreed to the settlement to resolve "different interpretations of the insurance code," spokesman Rich Halberg said.
"There is no admission of liability," Halberg said. "This clears the way for an improved working relationship with the Insurance Department."
The $30 million represents the amount that policyholders were overcharged, Garamendi said. Based on that, the average refund would be about $120, but individual refunds will vary based on the amount of the policy and other factors.
Insurance Department officials said Allstate improperly overcharged customers in five ways:
· Allstate included a type of credit score, "financial stability ratings," when underwriting homeowner policies, which could cause some individuals to get bumped out of "preferred" rates into higher-cost plans.
· When renewing existing homeowner policies, Allstate didn't always provide the best available rate.
· Customers applying for homeowner insurance for the first time were improperly charged a higher rate if they did not previously have renters' insurance.
· The company sometimes failed to provide multi-policy discounts to those who insured both their homes and their cars with Allstate.
· Auto policyholders who had more vehicles than drivers were overcharged in some cases. Regulators said the rate for the extra vehicle wasn't always based on the cost for the lowest-risk driver, as required.
As part of the settlement, Allstate also agreed to make changes in the way it handled fire damage claims, Garamendi said.
In the wake of the 2003 Southland wildfires, numerous Allstate policyholders complained that their insurance claims were shifted from one adjuster to another — creating extra work for the customers and delaying payment of their claims, Garamendi said.
Wildfire victims will not receive restitution, he said, but the process for submitting claims will be streamlined under the new agreement.
Garamendi also said that Allstate and other insurance companies had systematically underestimated the cost of replacing homes, which left many homeowners with too little coverage to rebuild. Allstate has agreed to revamp its method of determining replacement costs, Garamendi said, and similar agreements with other insurers are expected.
Regulators began examining Allstate in response to consumer complaints and questions raised by its own staff auditors, Garamendi said.
"Some of these issues are endemic in the industry," Garamendi said. "There are other investigations in the pipeline."
Allstate policyholders should contact the company or their insurance agent to determine whether they are eligible for a refund.
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