Court upholds Allstate sales ban

Ruling spurs the insurer to post thousands of pages of documents on the Web

By John Hielscher and Paige St. John
STAFF WRITERS
Herald-Tribune--April 5, 2008

A state appellate court Friday freed Florida to ban Allstate from writing new policies in Florida.

Insurance regulators first sought the ban in January after Allstate refused to turn over internal documents describing how it sets rates and pays out claims. But Allstate appealed Florida’s action and the ban was stayed while the case was argued.

Within hours of Friday’s ruling, Allstate announced it would publicly post 150,000 pages of internal documents on the Internet, a striking reversal for a company that has spent millions nationwide trying to keep many of its business strategies secret.

Early Friday evening, Allstate posted thousands of pages on its Web site and said it would staff a media hot line over the weekend to handle calls about the material.

The records detail Allstate’s redesign of its home and auto claims handling systems under the guidance of New York management consultants McKinsey & Co.

"It comes down to the need to address the misunderstandings of the public," said corporate spokesman Mike Siemienas.

Siemienas said Allstate had endured its fill of "the growing misplaced focus by the public."

It was not clear Friday if the documents Allstate posted would satisfy state regulators or even if they included the documents Florida has been seeking in an effort to determine why Allstate’s premiums continued to increase despite state efforts to reduce them.

Florida insurance regulators were restrained in reacting to the sudden release of records they had been fighting for months.

"It is too early for us to guess the impact to the public because we haven’t verified the documents," said Tom Zutell, spokesman for the Office of Insurance Regulation. "If they are what they say they are, we are pleased, but it is unfortunate that it takes the threat of the resumed suspension to make it happen."

Allstate was still able to write new policies as of Friday.

The Office of Insurance Regulation ordered Allstate to stop writing new business on Jan. 17 because it believed the company was ignoring state regulators’ subpoenas for records. The insurer challenged the order in court, and the First District Court of Appeal lifted the ban after one day. The same court now says Florida acted properly.

A suspension would prevent Allstate’s 1,100 Florida agents from selling auto and other coverages. The company stopped writing new homeowners insurance in 2005.

Insurance Commissioner Kevin McCarty said Friday that Allstate had "blatantly and flagrantly" disregarded the law by refusing to fully answer the subpoenas.

"They had the opportunity to comply with the law," he said.

Allstate, the second-largest auto insurer and fourth-largest property insurer in Florida, said it was reviewing the court’s 16-page decision.

"We are very disappointed in today’s ruling and disagree with the court’s opinion," the company said in a statement.

The insurer said it has turned over more than 400,000 pages of documents so far and will continue to work with insurance regulators to respond to the subpoenas.

Among the documents Allstate said it has already given Florida regulators is the so-called McKinsey report, a zealously guarded strategy that details how the company saves millions of dollars by paying less on auto insurance claims.

Beyond the McKinsey report, McCarty said the company maintains a 196-page privilege log of documents that it refuses to turn over.

"They have not been willing to explain to us their relationships with rating agencies, modeling companies and trade groups and how these relationships might have influenced the huge rate increases they requested in September," he said.

McCarty chose the harsher suspension, rather than a fine, because Allstate is already willing to accrue $25,000 a day in fines for failing to provide documents in a Missouri case.

The Tallahassee-based court’s unanimous decision was another victory for McCarty and the OIR’s get-tough stance with the insurance industry.

The regulator also recently won two administrative law judge rulings that upheld refusals to approve large property insurance rate hikes for Florida Farm Bureau and Hartford Insurance.

There was some initial confusion Friday over whether the Allstate suspension was immediately reinstated.

OIR officials first thought the ban went back into effect right away. But they backed off, saying Allstate had 15 days to request another hearing on the ruling.

They plan to ask the court Monday if they must wait to reinstate the ban.

Allstate believes the ruling is not final, and it will continue to sell new policies.

McCarty said it was rare for a court to uphold a regulatory agency’s order to prevent a company from writing new business.

The court rejected Allstate’s claims that OIR was abusing its power or trying to harm the company and its agents.

"Allstate may lift the suspension at any time by simply producing the documents it is required by statute to ‘freely’ produce in order to conduct insurance business in Florida," the court wrote. "OIR places no extra burden on Allstate than the one Allstate voluntarily accepted when choosing to transaction insurance in Florida."

Allstate says its agents sell more than 100,000 new policies in Florida every year. The company has about 2 million homeowners and auto policies in Florida, though it has scaled back its property exposure.

OIR had scheduled public hearings in January on Allstate’s business practices.

The hearings were triggered after the company filed to raise homeowners rates by up to 42 percent, after an earlier 14.2 percent reduction.

McCarty canceled the hearings after saying the company had failed to fully comply with his subpoenas.