Allstate Pulling Out of California?

According to an article from the East Bay Business Times, Allstate will stop writing new homeowners insurance and landlord policies as of July 1st in the state of California. This is part of Allstate's ongoing actions to reduce risk in its insurance business. Given similar actions taken by Allstate in Florida and other hurricane-prone areas, I'm wondering if Allstate is going to pull out of these markets completely.

Given its track record with Hurricane Katrina, Allstate clearly doesn't like paying claims.  

At this point of time, Allstate has 900,000 homeowners policies in California. Those customers will be able to renew their existing coverage, but that doesn't guarantee anything for the longer term. In fact, agents working for Allstate are being told to refer any new customers to Pacific Specialty Insurance Company; this is a third party insurer that is not affliated with Allstate.

This moratorium is just a continuation of actions taken by Allstate in California, including a move to make it harder to get homeowners insurance through tougher underwriting requirements. As a result of the new underwriting changes, Allstate had already seen a drop in new policies by 31 percent from the first quarter of 2006 to the first quarter of 2007.

Allstate's action is the first such in California since State Farm took a similar approach in 2002. State Farm's moratorium only lasted about a year. However, this freeze on new policies in Californis is hot on the heels of Allstate's other freeze in the Gulf states and eastern seaboard. State Farm and Allstate have been taking similar approaches to markets that result in a higher number of claims; for instance, State Farm currently has a freeze on new claims in Mississippi.

Clearly, some insurers don't really want to be in the insurance business -- at least, not if it involves having to pay claims. However, I thought that paying claims was inherent to the insurance business. Perhaps insurers have forgotten that policyholders aren't paying money for nothing.

Monique L. Attinger

Posted by on June 1,2007 at 4:54 AM

I wonder if they don't pull out of high risk areas because they can charge a hefty premium to be there, and, in fact, make good money in these areas when claims are low. Makes me wonder if the threat of a drier season in California and a more intense hurricane season on the coast has something to do with the current reductions in underwriting in certain areas.

After alll, Allstate posted a good profit for 2005 and 2006, despite the ravages of Katrina and other hurricanes. So, perhaps in California, they are going to take their profits and run.

Posted by Gary Brown on May 31,2007 at 9:12 PM

I worked for many years for an insurance company that did not write business in California, Florida, Mississippi or Louisiana.

It comes as a surprise that more carriers do not pull out of some of these higher risk areas.

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