Allstate Insurance Co.'s Behavior "Potentially Criminal"

"Wherever you may live, if you're shopping for insurance of any kind be sure to read the Consumer Federation's report before you let Allstate wrap its 'horrific' 'good hands' around your neck."

The First District Court of Appeals in Tallahassee has rewritten, but reaffirmed, its original opinion upholding the decision of the Florida Office of Insurance Regulation [OIR] to suspend Allstate Insurance Co. from writing any insurance of any kind. As Sarasota's Herald Tribune reports:

The suspension, which took effect at 9:30 a.m. Wednesday, will be lifted as soon as the insurer certifies in an affidavit that it has produced all those documents, said Insurance Commissioner Kevin McCarty.
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The ban will primarily impact Allstate's new auto insurance sales, which brought the company $1.8 billion in Florida premiums last year.

Among the wholly owned subsidiary Allstate companies affected, according to the Orlando Business Journal, are --

• Allstate Floridian Insurance Co.
  
• Allstate Indemnity Co.
  
• Allstate Property & Casualty Insurance Co.
  
• Allstate Insurance Co.
  
• Allstate Floridian Indemnity Co.
  
• Allstate Fire and Casualty Insurance Co.
  
• Encompass Insurance Co. of America
  
• Encompass Indemnity Co.
  
• Encompass Floridian Insurance Co.
  
• and Encompass Floridian Indemnity Co.

Existing policy holders are unaffected for the moment. But no new policies can be written.

Upon learning of the ruling Florida Governor Charlie Crist called it "a beautiful thing." Some insurance companies, he said, "are doing very good work. But some of them, like Allstate, have been horrific."

The appellate case decided yesterday has had an odd journey in the hall of mirrors that is the First District Court of Appeals. The first opinion [pdf warning] was issued April 4. Nearly three weeks later, on April 21, the court appeared to be enforcing its decision by issuing a order that would have allowed the OIR to proceed with its ban against Allstate selling insurance until it complies with the subpoena. But half an hour later the court withdrew its order, claiming it had been issued "in error." Today's ruling takes us back to April 21 and will place the power of enforcement squarely in OIR's hands.

Yesterday's court opinion [pdf warning] is about one page longer than the original April 4 decision. The most prominent changes in the new document appear to be that the appeals court twice introduces, now, the word "unique" to describe the circumstances of Allstate's obstinacy; and it emphasizes in a concluding passage that Allstate's behavior has been "willful, indeed potentially criminal."

The Miami Herald's Beatrice Garcia has more on the immediate consequences of yesterday's action:

The company's nine insurance companies operating in Florida now are barred from writing new policies until Allstate fully complies with a state subpoena for documents and information about its rate-setting process and rate filings. * * *

Existing Allstate policyholders are not affected by the ban. Also, the Office of Insurance Regulation will allow consumers who already have quotes from Allstate to buy the policies if they wish.

The state agency subpoenas initially were issued to obtain internal corporate documents that would show whether the company has developed claims handling practices that overtly cheat existing customers. The suspension of Allstate's certificate to write insurance in Florida was imposed because the corporation refused to comply with the subpoena.

And how. As the appeals court's opinion recites, "most of the required documents were withheld." As for others, the corporation "labeled every one" as "trade secrets" even though "some of these 'trade secret' documents were public records." "Many of the documents" that were produced, the court says, "had pages removed."

Courts in other states have demanded production of some of these same documents, and Allstate has stiff-armed them, too, in at least one state exposing itself to multi-million dollar fines. As Florida's insurance regulators have learned --

Allstate was currently being held in contempt of court in Missouri with a $25,000.00 per day fine for its failure to produce documents and, as of the date of the hearing, those fines exceeded $2 million.

That must be some "trade secret" Allstate is trying to hide. More like a corpus delicti.

The insurance company's practices were first documented in a report issued last year by the Consumer Federation of America, titled, "The 'Good Hands' Company or a Leader in Anti-Consumer Practices?: Excessive Prices and Poor Claims Practices at the Allstate Corporation" [pdf warning] There, CFA's director insurance documents how in the past ten years --

property casualty insurers overall have paid out less in claims for every dollar spent on premiums by consumers, as profits and overhead costs increased. Many insurers have implemented pricing “innovations” like using credit scores and multiple rate classifications that appear to have a disparate, adverse impact on poorer and minority consumers. They have changed policy language to hollow out the coverage offered, particularly for home insurance, and dramatically increased consumers’ out-of-pocket costs. They have deployed ambiguous and harmful coverage restrictions that are beyond the ability of consumers to clearly understand. Some insurers have also refused to renew the policies of consumers in coastal regions, forcing them into high-cost state-supported insurance pools. This practice socializes the cost of high risks while privatizing the profitable risks.

As CFA has tracked these questionable practices, one insurance company stood out as a leader in creating and exploiting many of these trends. That insurer is Allstate.

One among many techniques Allstate pioneered is essentially to pay no attention to the merits of any casualty claim. As the CFA report documents:

Allstate was one of the first major insurers to adopt claims payment techniques designed to systematically reduce payments to policyholders without adequately examining the validity of each individual claim, [using] an automated payment system called Colossus. It adopted these techniques after being told by a consultant that these systems would put them in a “zero-sum game” with claimants, including their policyholders who filed claims, in which Allstate shareholders would benefit financially at the expense of policyholders.

There's more, a lot more. Wherever you may live, if you're shopping for insurance of any kind be sure to read the Consumer Federation's report before you let Allstate wrap its "horrific" "good hands" around your neck.

Allstate isn't saying right now whether it will attempt a discretionary appeal to the Florida Supreme Court. But it also is facing other investigations, including claims of industry-wide "collusion, price gouging, conspiracy and breaking state law."