AUTO INSURANCE

State bans Allstate from selling new auto policies

Florida regulators will yank Allstate's license to sell auto insurance over the company's refusal to provide documents about rates. The biggest losers could be Allstate agents.

BY BEATRICE E. GARCIA

bgarcia@MiamiHerald.com

It's an unprecedented move for the state Office of Insurance Regulation, which is on the warpath because homeowners' premiums are still high despite passage of an insurance overhaul law in January 2007. The office is seeking information concerning how Allstate sets its rates and pays claims, and the company has refused to provide it.

''This is an ongoing and blatant disregard for the laws of the state of Florida. This can't and won't continue,'' Insurance Commissioner Kevin McCarty said Wednesday.

The move sends a powerful message to the rest of Florida's insurance industry that rates must come down. Already, regulators and a special Senate panel have subpoenaed other insurers, and Gov. Charlie Crist has threatened a class-action lawsuit to compel the companies to provide insurance relief to homeowners.

The state's action against Allstate is expected to cause minimal financial pain for the company, especially if the ban is brief, because existing policies are exempted. Allstate customers can renew, and consumers looking for carriers will be able to find another insurer in Florida's highly competitive auto insurance market.

The biggest losers will be Allstate's agents, who will miss out on lucrative new business. Also taking a blow: Florida's reputation as an industry-friendly state.

''It's a big game of chicken,'' said Jay Brown, a lawyer with Houston's Beirne, Maynard and Parsons who does insurance litigation work. ``The last thing the state or Allstate wants is to lose a carrier from the auto insurance market.''

Joseph Dawson, of Dawson & Finkelstein, whose practice specializes in insurance litigation, said absent a circuit court ruling reversing McCarty's decision, Allstate will have to stop selling new auto policies in Florida.

Allstate is still weighing its options, said Adam Shores, a company spokesman.

The Office of Insurance Regulation's order is effective when it is delivered to Allstate's parent company in Northbrook, Ill. The order was expected to be ready by Thursday morning.

The ban is in effect until Allstate complies with the office's subpoena.

''Our goal is to bring insurers into the state, and so I regret that Allstate put McCarty in this position,'' said Senate Minority Leader Steve Geller, D-Cooper City. ``But we have to show the insurance industry that they are not the ones in charge, and they must comply with the laws of Florida.''

Allstate ''has been horrific in its corporate ethic. [It] has completely lost any trust or confidence,'' Crist said.

The financial blow to Allstate will be lessened because the company still writes auto insurance policies in all other states.

''We recognize the auto insurance market in Florida is significant. And while there is potential new business opportunity there, the suspension won't have an impact on Allstate's financial strength and debt ratings'' said Kenneth Tappen, senior vice president and financial analyst in the rating division at A.M. Best, the Oldwick, N.J., agency that rates insurers' financial strength.

Allstate's claims-paying ability wouldn't be affected, said Tony Diodato, a vice president at A.M. Best.

What's more, Allstate can continue to sell new life insurance and financial products in Florida.

McCarty said Allstate can even write new homeowner coverage, though he doubted that would happen since the company has been shedding policies for years.

Although Allstate is not the player it once was in the homeowners' market, it is the second-largest insurer in the state of autos, with about 1.7 million policies.

Allstate policyholders can still renew home and auto policies. And unlike homeowners insurers, there are plenty of other auto insurers in Florida currently.

Edmond Bensimon, an Aventura condo owner whose policy was canceled by Allstate in May 2007, welcomed the state's efforts to crack down.

''The company is abusing the public,'' said Bensimon, who found insurance at a much higher rate.

Larry Brough, an Oakland Park retiree, shares his sentiments about the insurance industry. Rate increases from his insurer, State Farm, forced him to leave for another carrier after 30 years of paying premiums.

Regulators have failed to protect consumers from what Brough considers unfair business practices by the state's insurance industry.

''They can come in and do business where they want and with whom they want,'' Brough said. ``They'll sell you car insurance at the drop of a hat, but they won't cover your home.''

Caught in the middle of the Allstate standoff are nearly 1,200 agents who sell the company's auto policies and can't sell coverage from another insurer. They stand to lose a sizable portion of their income because new business is the most lucrative.

''You need to acquire new clients every day to keep your business going,'' said Don Brown, president of the Florida Association of Insurance and Financial Advisors, an agent association.

''We're sympathetic to what the insurance commissioner is doing. His ultimate goal is to help consumers. But it seems like the agents are caught between a rock and a hard place,'' he added.

Beyond the effect on agents, industry officials believe the regulators' move sends a strong negative message to other insurers already working Florida -- and those considering a move into the state.

'The regulatory environment in Florida has turned even more poisonous than it once was. It's impossible for the health of the homeowners' market to improve with these actions,'' said Robert Hartwig, chief economist for the Insurance Information Institute, a national trade group.

He says many insurers will see operating in Florida as a money-losing proposition.

Worse yet, Hartwig said, with regulators' action, 'the turmoil in Florida's homeowners' market has spilled over into the auto insurance market . . . and consumers now have one less auto insurer to choose from.''

The homeowners' crisis has continued unabated despite a bill the Legislature passed in a special session in January 2007. Lawmakers increased the state's Hurricane Catastrophe Fund to provide insurance companies with low-cost backup insurance so they could pass along savings to customers. But Allstate -- and other companies -- instead sought double-digit increases, and regulators have been demanding answers.

For his part, McCarty said he regrets that Florida's current insurance code gave so few options to sanction Allstate -- a weak fine or pulling the company's certificate of authority. ''It's either a slap on the wrist or the death penalty,'' McCarty said.

The next move is up to Allstate -- the ban will be lifted as soon as it complies with regulators' subpoena.

''I don't know how they do things in Northbrook, but that's not how we do things in Florida,'' McCarty said. ``If you agree to do business in Florida, you agree to open your books to inspection by regulators.''

Miami Herald staff writers Monica Hatcher and Gary Fineout contributed to this report.