Article Number 4
GetCoveredUSA.com
May 10 , 2007

Allstate to no longer offer new homeowners and landlord policies in the state of California

According to sources at Allstate, they claim that California is a "catastrophe-prone" region and intend to pull out of the market of Dwelling Fire and Homeowners. Allstate at the time of this writing is the 2nd largest insurer next to State Farm in the state of California at over 2 billion in written premium. Third Place is Farmers Insurance Group. Allstate currently insures close to 900,000 homes in California and has approximately 1,200 agents.

California State Insurance Commissioner Steve Ponzier says:

"Allstate's actions in California mirror its recent retreat in other markets such as Florida and New York, and in our free enterprise system, it is their right to choose where it does business. While the writing has been on the wall regarding its intent in California, I believe this is a short-sighted business decision. I expect there will be no shortage of insurance companies who will be more than happy to compete to serve more than 1 million Allstate customers."

The move by Allstate could also be in response to demands by the California Department of Insurance to reduce premiums across the board for all insurers in the state. New regulations require that all increases in rates be justified and the company currently has a 12 percent increase pending approval. Prior to this, tightening in underwriting regulations saw a reduction in policies written by 5000 from first quarts years 2006 to 2007. They have taken similar measures in the other coastal states of Connecticut, Delaware, Florida, New Jersey and some parts of New York where they have also stopped writing new Dwelling Fire and Homeowners Policies.

The last time an insurer stopped writing policies in California was 2002 when State Farm, the nations largest insurer, decided to stop accepting new business home policies due to an up rise in mold claims. Farmers Insurance Group made a similar move in Texas by not only halting new business but also non-renewing existing policies. Recently Farmers Insurance Group has switched in some states, its Protector Plus Policy which was an "Open Perils" type form to a new form which is now a "Named Peril Only". The difference between the two being, an Open Peril policy covers everything as long as it isnt specifically excluded. A Named Peril policy covers only losses that are specifically included. This greatly reduces exposure to the company and potentially leaves the consumer with a very large problem if they have a loss that isnt covered by their new policy.

Overall losses in the industry in 1996 were approximately $2 Billion while written premium was $3 Billion. Losses were trending upwards to about $4.4 Billion on $5.3 Billion in written premium. Then in 2004 there was a drastic decrease in losses back down to just over $2 Billion on $5.8 Billion in written premium. 2005 rounded it back out at $2.5 Billion in losses on $6.3 Billion in written premium. So it is conceivable that the California Department of Insurance noted this downward trend and in turn requested that the Insurance Carriers in the state pass some of the difference back to the consumers.

For years 2004 and 2005. Allstate Insurance reported over $1.5 Billion in earned premium for homeowners insurance policies and paid out approximately $550 Million in claims. The net result is difference just shy of $1 Billion. On paper, the business doesnt look any worse than numbers of the other carriers. Also keep in mind there is an expense ratio involved in the remaining difference in premium earned but not paid in claims. Some of which goes to administrative costs, agent commissions, underwriting costs etc.

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