Allstate must cut California auto insurance rates 15.9%

Insurance Commissioner Steve Poizner orders Allstate to roll back prices more steeply than the company had wanted. The insurer is considering a legal challenge.
By Marc Lifsher, Los Angeles Times Staff Writer
March 19, 2008
Allstate Corp., which covers about 1 of every 10 insured cars in California, has been ordered to cut its automobile rates by 15.9% -- an average savings of $124 per car, state Insurance Commissioner Steve Poizner said Tuesday.

The new rate is effective April 14, and Allstate is considering whether to appeal the rate cut order in court.

"California's consumers deserve a competitive marketplace in which to shop around for the best rates that meet their needs," Poizner said in a statement.

"This reduction reaffirms my commitment to ensuring that excessive rates are not charged. At the same time, the rate reduction is fair and reasonable for the company."

Allstate's reduction is the latest in a series of rate cuts in California by dozens of automobile insurance companies since the summer of 2006. After losing a protracted court challenge, the industry began complying with regulators' insistence that it primarily base its premium-setting formulas on a person's driving record, number of years behind the wheel and total miles driven annually.

"It was very clear that they were charging too much," said Douglas Heller, executive director of the Foundation for Taxpayer & Consumer Rights, the Santa Monica-based advocacy group that successfully championed Proposition 103 in 1988. The voter-approved initiative turned insurance into a highly regulated business, similar to power companies and other public utilities.

Heller, whose organization had legal standing to participate in the Allstate case, predicted that other auto insurers would propose lowering their automobile premiums in rate submissions scheduled to be delivered to the California Department of Insurance this summer.

The order, which came at the close of a lengthy proceeding before an administrative law judge, was more than twice what the Northbrook, Ill., company wanted to grant its policyholders.

According to the order issued by Poizner on Friday, Allstate had requested permission to lower its rates by 7.1%. The department's rate-setting formula calculated that a 19.4% reduction was merited.

After months of legal arguments, a state administrative law judge granted Allstate a credit to cover the expenses of providing additional services to low-income neighborhoods and brought the final rate reduction down to 15.9%.

Allstate contends that it is being unfairly singled out by Poizner in being forced to cut rates by a larger percentage than other insurance companies.

"Suppressing one company's rates below the rest of the market is unfair to that company and not conducive to a healthy economy in California," Allstate spokesman Peter DeMarco said.

The company is also embroiled in a dispute with Poizner over the cost of its homeowner policies.