by Tammy Williamson Business Reporter
August 23, 2002
Illinois homeowners hit with double-digit increases from Allstate this year won’t see new increases next year, but auto rates in Illinois and nationally could rise 4 or 5 percent on average, said Edward Liddy, Allstate’s chief executive officer. And while some states will see home insurance rates go up next year, the increase won’t be as hefty as the one this year, he said. In addition, Allstate has no plans to stop writing homeowner policies, a decision made recently by rival State Farm Mutual Insurance Corp. amid mounting losses. This week, another insurer, Farmers Insurance Group, decided to stop writing homeowner policies in Texas after state regulators ordered Farmers to cease what they called unfair and illegal practices.
For now, Liddy sees opportunities to scoop up new customers, and has no intention of halting new homeowner policies–barring tussles with state regulators, he said at a luncheon with reporters Thursday. “We think we won’t have to,” Liddy said. “In some states, where you can’t get a commissioner to give you relief, you may have no choice. But that is our last line of defense. We prefer not to have to pull back in any state, but you have to sell products that you can make money on. “If a commissioner won’t let you do it from an underwriting or pricing standpoint, we could have to do that in some states.
I’m not predicting it–I’d like not to do it–but on the other hand, I’m not going to sell products and lose money on them.” Allstate can pick up new customers at lower risk by using credit scoring to determine whether to sell insurance to a customer and how much to charge. It’s a controversial practice, and critics say it could be discriminatory to people with little or blemished credit histories. But Liddy raves about the practice, saying it’s already helped Allstate lower its costs because it charges riskier customers more. “We want to have a price and product for everybody,” he said. Credit scoring is used “so we can write more insurance, not less insurance.” Rate increases announced earlier this year are also part of Allstate’s plan to continue its rebound to profitability, after a tough 2001 for Allstate and other property-casualty insurers.
Harsh winter weather, coupled with flooding and toxic mold in Texas hit Allstate, which still managed a profit in 2001, and other insurers, which lost money last year. In raising rates this year, Liddy contended that Allstate and its competitors have been charging too little for home and auto insurance, given the rising costs of building materials and auto repair. Several insurers have now increased home policies in particular, amid losses last year. State Farm alone lost $5 billion in 2001. Allstate in March said it was raising homeowners’ rates in 20 states by an average of more than 20 percent, and auto insurance in 17 states by an average of about 8 percent.
In Illinois, homeowners’ insurance rose about 25 percent, and auto climbed about 3 percent. “Homeowners: There are still clearly areas around the country that are going to see more in the way of rate increases,” Liddy said. “The product has been underpriced.” Increases will “be at a slower rate, not zero, but not as high as what was taken in the past year,” he said. Auto rates, both nationally and in Illinois, could rise between 4 percent and 5 percent, on average, above previous increases that have already shown up in semiannual auto policy bills.
Increases in policies for what the company considers high-risk drivers should be made by the middle to end of next year, he said. Liddy said he doesn’t want Allstate to have to rely on rate increases to keep the insurer profitable. He talks a lot of broadening Allstate’s “footprint”. Allstate will seek to increase its home and auto business, but will continue to increase sales of relatively newer–and weather-resistant–products like banking services and investments from its Allstate Financial division. As the chief of a company heavily affected by weather, Liddy said he hops on a treadmill at home everyday and flips, naturally, to the Weather Channel. But he doesn’t watch it for long, just as he doesn’t want Allstate’s performance to be dictate by hurricanes and ice storms. “We’re in a difficult business.
We depend upon the weather,” he said. “We would like our shareholders to be rewarded with more consistent earnings. When the Earth shakes or the wind blows, it can wreak havoc on our income statement and our balance sheet. That’s why we want to broaden our footprint.”