Allstate Insurance a Victim of It's Own Low-Ball Tactics; Ordered to Reduce Insurance Rates
Earlier this week, the California Department of Insurance ordered Allstate Insurance Corp. to reduce its' homeowner insurance rates by $255 million. The ordered reduction comes in response to to Allstate's request to raise premiums for homeowners by 9.8%. Instead, the Department of Insurance ordered a reduction of 28.5%--slightly less than the 30% reduction advocated by Consumer Watchdog, a consumer advocacy group.
The reduction will represent an average annual savings of $243 for Allstate's estimated 850,000 homeowner policy holders in California.
In April, the Department of Insurance also ordered Allstate to reduce its' auto policy premiums by 15.9%--representing another premium cut of $250 million per year.
It seems that Allstate has become the victim of its' own aggressive, low-ball claims tactics--the same tactics that led the American Association of Justice (formerly known as the Association of Trial Lawyers of America) to name Allstate the worst insurance company for consumers earlier this week. The AAJ report specifically points to Allstate's use of the consulting firm of McKinsey & Co. in the mid-1990s to develop a scheme to force claimants to accept lowball offers or go to trial.
Allstate's relationship with McKinsey & Co., and the subsequent development of Claim Core Process Redesign (CCPR) and other tools to lower claims payments, has been well told lately in the book From Good Hands to Boxing Gloves by New Mexico trial lawyer David Berardinelli.
In addition to Allstate's aggressive lowball claims payment process, Allstate has also systematically limited the types of claims covered under their policies by increasing the number and type of exclusions. Insurance companies use exclusions to prevent their obligation to make a claim payment at all for types of claims that one might assume were covered under their policy. For example, Allstate has moved to exclude all mold claims and certain water leak damage claims from coverage.
All of this has led to Allstate earning record profits while they reduce the amount paid for claims while keeping their premiums at the same level.
Now that Allstate has been ordered to reduce their premiums, it remains to be seen how they respond. Will they only further ratchet up their efforts to lowball claimants? Will they push for policyholders to purchase "enhanced" policies with fewer exclusions, albeit at a higher price? Unfortunately, my suspicion is that Allstate will try to increase their profits by forcing more claimants to trial. That has been Allstate's modus operandi for years and it would be surprising to see them change now.
