Schumer Asks New York Insurance Department to Investigate Allstate

SCHUMER ASKS NEW YORK INSURANCE DEPARTMENT TO INVESTIGATE ALLSTATE

Newly Revealed Allstate Plan is Second Strike to the Heart of New Yorkers

Allstate plans to Increase Policy Cancellations, On Top of No Longer Writing New Coverage in Downstate New York

Senator Pushes State Insurance Department to Immediately and Publicly Investigate Allstate: Look for Link to Effort to Create New Federal Law, Asks Mills to Get Documents from Allstate that are Linked to Pulling Back on Coverage

With news that Allstate will be increasing policy cancellations - on top of its recent announcement that they will not write any new homeowners insurance policies in Westchester, Long Island and New York City - today Senator Chuck Schumer called for the State Insurance Department to thoroughly and publicly investigate Allstate's actions. Though the State Insurance Department has called for a hearing on the matter in general, today Schumer asked Insurance Superintendent Mills to use his broad regulatory powers to instigate a more pointed investigation that requires Allstate to turn over documents regarding its decision to pull back on coverage and explore any link between Allstate's new policies and any effort to create a federal, taxpayer -financed catastrophic fund.

Schumer commended the State Insurance Department (SID) for calling a hearing for later this month, but indicated that given the assumptions upon which Allstate's actions are based, more must be done.

One of the reasons that may be behind Allstate's actions is the desire by insurance companies to build pressure to create a catastrophic fund that would indemnify them from costs of devastating natural disasters, like major hurricanes. A catastrophic fund would make the Federal government, and in turn taxpayers, responsible for paying for catastrophic hurricanes. While Schumer has not yet reached a policy conclusion on this issue, he said, "I am extremely concerned about the manner in which some companies like Allstate may be using these innocent residents to achieve their larger goal."

In his letter to Insurance Superintendent Mills he wrote, "In this instance, I fear that Allstate is perhaps using New York's insurance consumers as pawns in an effort to create a an environment that lends momentum to their effort to pass federal legislation that seeks to create a catastrophic insurance fund financed by the American taxpayer…The company's actions are particularly galling in light of the facts that they received an 8.5% rate increase from the SID, and the firm's bottom line remains healthy. It is my strong belief that the company's policy should be better tailored to reflect the realities of the weather patterns of downstate New York."

He asked that the investigation specifically ask Allstate to provide: All documents they have that has led to the decision to pull back on coverage, as well as any document they have in which the idea of pulling back on coverage is linked to their effort on behalf of creation of a federal catastrophic fund. In addition, he asked the Department's review to examine the market impact Allstate's decision will have on the cost of insurance and homeownership in the region, and the appropriateness considering the company's profitability and superior "loss ratio" score in the state of New York.

On the first of this year, Allstate announced that it would not write new homeowner policies in New York City, Long Island and Westchester as a part of an overall "hurricane risk management strategy" that it implemented at the start of 2006. Now Allstate says that in addition it will increase the number of policies that are cancelled each year at the end of their three year expirations. According to state Insurance Department Policy, Insurance companies are prohibited from not renewing more than 4% of their existing homeowners policies. Estimates indicate that would leave Allstate with the ability to cancel about 18,000 policies.

Allstate's reach in the markets that it has pulled out from is wide. It has an 18% share of the homeowner's market in New York, and 25.9% of the market in the eight affected counties meaning that there is far less competition and prices for homeowners' insurance could go through the roof. Schumer said, "If these policy changes stand, insurance coverage will become more difficult to secure, the market will become less competitive and insurance may become increasingly more expensive. In the extraordinarily expensive downstate New York housing market, Allstate actions have the effect of erecting further hurdles on the already burdensome path to the American Dream for many New Yorkers. This change would not only unduly burden over half a million residents of downstate New York, but will also negatively impact the local economy which is closely linked to its vibrant housing market."

Recent statistics from the National Oceanic and Atmospheric Administration (NOAA) show that the odds of a category four or higher hurricane hitting New York City is once every five hundred years and on Montauk Long Island once every 130 years. Miami, by contrast is once every 15 years. The risk of a hurricane hitting Miami is 900% greater than on Eastern Long Island and 3300% greater than in NYC.

Schumer's letter also said: "The insurance industry has a responsibility to guarantee a financial cushion for those in a time of need, particularly as policyholders have continued to pay their premiums year after year. Regrettably, despite healthy profits, Allstate is attempting to walk away from that responsibility. I know you care about the effect these actions have on our consumers and our economy, and I hope we can work together to reverse this misguided effort, and to deal with any harmful reverberations that may occur in the meanwhile. "

http://schumer.senate.gov/SchumerWebsite/pressroom/press_releases/2006/PR54.Allstate%20Followup.020906.html