Friday, 30 November 2007 09:00

Allstate Defends $300M Margin and Threatens to Downgrade Service in California

The Foundation for Taxpayer and Consumer Rights (FTCR) announced that in a CA Department of Insurance hearing this month, consumer advocates argued that drivers with Allstate insurance policies deserve an 18.8% rate (averaging of $150 per car) under new rules that limit excessive profits by the industry.


Allstate seeks five separate exemptions to the regulatory formula that determines auto insurance rates, including one claiming that the company will suffer deep financial hardship if it follows the rule, despite the company’s already above-average profitability and shareholder return. FTCR has estimated that, under the guidelines, Allstate is overcharging auto insurance consumers $304.2 million per year.

In written testimony, Allstate issued a thinly veiled threat to regulators suggesting that a company forced to abide by rules limiting excessive profit might have fewer offices, reduce the quality of its claims processing, or even stop selling insurance in the state entirely.


The hearing will be the first under new regulations issued by the Department of Insurance last year that revised the guidelines for profitability.


Consumers won an early victory in the case this week when Allstate withdrew its request to charge consumers an additional $15.5 million in premiums based upon its claim of “higher quality” customer service. Allstate’s own internal polls showed that, since at least 2000, Allstate has consistently fallen below the industry average for customer satisfaction.

Allstate’s stock, at approximately $50 per share, is essentially unchanged for the past three year period.

Allstate Vendor Selection Process
Allstate’s PRO Shop network announced a new “vendor selection process,” which requires private information about themselves and their employees, including secure data like social security and credit card numbers. Allstate’s letter to participating shops stated that shops would need to submit additional information on their companies, owners/officers and shop managers via the web. Allstate stated in the letter that a comprehensive background check will be conducted by Acxiom, a provider of risk mitigation services handling its credentialing program. The letter stated that the check would included “verification of your credentials, licensing and insurance, along with a public records search of criminal and civil suits and judgments.”

David McClune, executive director of the CAA, issued a letter to Allstate expressing concern. McClune’s letter Allstate’s policy would conflict with existing employer-employee confidentiality clauses, and that providing the sort of information Allstate requests could lead to criminal prosecution of shops for privacy and identity theft.

“Employers in California have a responsibility to protect employee privacy and confidential information, including employee social security numbers and home addresses,” said McClune’s CAA letter. “In many cases, employers in California do not have the right to make hiring decisions based upon credit information and therefore would not request or maintain employee credit card information. Frankly, maintaining such confidential credit information would be a poor business practice.”