Allstate to Settle Rate Claims
By Kathy M.
Kristof
Times Staff Writer
June 27,
2005
The insurer will pay a state fine
and repay $30 million to clients who may have been
overcharged. It admits no wrongdoing.
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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