Recap: Allstate Public Rate Hearing & News Release: OIR Denies Proposed Rate Hikes

 

On November 15, 2007, a member of this Firm attended a public rate hearing for Allstate Floridian Indemnity Company (“Allstate Indemnity”), Allstate Floridian Insurance Company (“Allstate Floridian”), Encompass Floridian Indemnity Company (“Encompass Indemnity”) and Encompass Floridian Insurance Company (“Encompass Floridian” and collectively, the “Companies or Allstate”).  Representatives from the Florida Office of Insurance Regulation (“OIR”) included Belinda Miller, Deputy Commissioner; Michael Milnes, Deputy Director; Bob Lee, Actuary; Steve Parton, General Counsel and Rhonda Johnson, Assistant General Counsel. 

The Companies sought the following rate increases:

• 28.3 % for Allstate Indemnity;
• 41.9 % for Allstate Floridian;
• 38 % for Encompass Indemnity; and
• 39 % for Encompass Floridian.

Allstate provided two (2) reasons as justification for the rate increase:  (1) the significant increase of rate exposure in Florida (an issue not addressed in House Bill 1A) and (2) Allstate is not in a position to rely exclusively on the Florida Hurricane Catastrophe Fund (“FHCF”) for reinsurance coverage.  Allstate stated that Florida’s insurance market is unstable and unprofitable and that such instability has led to the growth of Citizens Property Insurance Corporation as the state’s largest insurer.  The Allstate representatives noted that they support some new provisions in the law; such as an increased FHCF, increased mitigation efforts, and improved building codes.  However, they stated that the state needs a more comprehensive policy.  Allstate representatives also noted that although their parent company’s investment is not enough to sustain the individual companies, it would not be financially prudent to seek additional money from it.  Further, they stated that the rate increases are based on scientific evidence indicating that hurricane activity and intensity is increasing. 

Allstate representatives discussed the specifics of the proposed rate increase.  During their presentation, the OIR panel posed several questions about the rate filing.  Allstate noted that its basis was a forward-looking exercise, whereby they were considering past events at today’s risk.  They noted a premium trend increase of nine (9) percent annually and a loss cost of negative five (-5) percent.

Next, there was discussion regarding the Hurricane Modeling Company used by Allstate in its rate filing.  The OIR panel expressed concerns regarding the use of short-term adjustments in the modeling.  There was significant dialogue regarding short-term and long-term adjustments.  The panel was particularly concerned because the Florida Commission on Hurricane Loss Projection Methodology did not approve the short-term adjustments, which are the basis for the increased rates. 

Allstate then reviewed general and acquisition expenses related to the rates.  The OIR panel was concerned about the dollars Allstate included for advertising expenses since it is not writing new policies.  Allstate responded that the advertising dollars are for existing customers only.

The OIR panel also expressed concern over the filing not including new wind mitigation factors.  According to the OIR, based on those factors, the rates should be lower.  Allstate responded that the filing did not include those factors due to system issues, but its customers could expect a refund for eligible policies as applicable. 

The next line of questioning related to agent commissions.  The OIR panel expressed concerns with agents receiving increased commissions based on the rate increases, even if the actual services provided did not change. 

The OIR panel also queried Allstate about its county-by-county breakdown and the variances in long-term versus short-term trends for certain areas.  It was also noted that Miami-Dade County was near the average, which is unusual.

There was discussion regarding Allstate’s AM Best rating of B+ and the requirements for rating, which include reinsurance factors and PML numbers.  Further AM Best requires reinsurance for two 1:100 year events.  Allstate noted that although this new requirement is driving up costs, the AM Best rating is nonetheless very important.

Next, Steve Alexander from the Office of the Insurance Consumer Advocate expressed concerns about the rate filing.  He noted that non-hurricane catastrophic losses are too large, unreasonable and biased.  He stated that marketing expenses and agent commissions in Florida should decrease because there is minimal competition in the state.  Also, he opined that the short-term adjustment in catastrophic load is only used for upward deviations and never used for decreasing rates.

The OIR panel provided closing remarks noting that the extension of the FHCF is somehow leading to increased rates, which is unacceptable and yet to be explained.  Further, companies that increase their reinsurance coverage are not passing the rate savings to customers as intended by House Bill 1A.  The panel was also critical of hurricane modeling because it is not providing market stability as promised.

The OIR indicated that it would take the comments from this hearing into consideration and make a determination, not keeping the record open.  Subsequently, on November 16, 2007, the OIR issued Notices of Intent to Disapprove these rate filings (please see the News Bulletin below).

 

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-NEWS FROM THE FLORIDA OFFICE OF INSURANCE REGULATION-