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Allstate Faces State Action on Premiums

Regulators say the insurer illegally used customers' credit records to set rates and altered their mileage.

March 13, 2003|John O'Dell | Times Staff Writer

California insurance regulators plan to sanction Allstate Insurance Co. for allegedly using customers' credit records to set rates and collecting higher auto premiums by pushing agents to alter policyholders' driving mileage.

A spokeswoman for state Insurance Commissioner John Garamendi said Wednesday that the agency already has decided to take action against Allstate for the two alleged violations and is simply waiting for recommendations from its attorneys before proceeding.

Allstate is California's third-largest auto insurer. The company collected $1.56 billion in premium income last year from about 2.2 million policyholders in the state.

The use of credit ratings for auto insurance rate-setting purposes is prohibited by Proposition 103, the insurance reform measure approved by California voters in 1988. But Allstate has been doing it for at least a year, according to Insurance Commission spokeswoman Nancy Kramer.

Executives at Allstate headquarters in Northbrook, Ill., and at regional offices in Sacramento could not be reached for comment Wednesday.

California insurance regulators also have been investigating complaints that Allstate agents have altered clients' policies to increase the number of miles driven each year, which can add hundreds of dollars to annual premiums.

At least two lawsuits making the same allegations have been filed in California -- one last year in Sacramento and another Monday in Los Angeles County Superior Court. Both seek class-action status.

Allstate agents themselves have complained. An agents' lobbying group, the National Assn. of Professional Allstate Agents Inc., has railed in its newsletter for several years against the company's insistence that agents push at least 65% of their clients into the high-rate, high-mileage categories.

Agents who don't meet the quota are threatened with loss of their ability to write so-called binding policies that take effect immediately, according to the lawsuits and Rod Guilmette, a retired Allstate agent who edits the trade group's newsletter.

An agent who cannot write a binding policy must tell clients that their insurance won't take effect until the policy is approved at Allstate headquarters, a process that can take days or even weeks.

"That doesn't sell many policies because people looking for car insurance usually need it to start right now," said Guilmette, a Burbank resident who sold Allstate policies for 30 years. "It's a pretty hefty threat" that affects agents' incomes, he said.

The Los Angeles suit, on behalf of 26-year-old computer hardware saleswoman Charlotte Hufschmidt, alleges that her policy was altered without her knowledge to reflect that she drove her 1997 Toyota Corolla more than 12,000 miles a year. When she initially applied for her Allstate policy, Hufschmidt said, she told the agent she drove less than 10,000 miles a year.

Hufschmidt said Wednesday that she doesn't know when the policy changed or how much the change affected her premiums. Her Santa Monica-based attorney, Wayne Kreger, said he has interviewed other Allstate clients who claim their rates jumped by as much as $800 a year when their mileage status was increased without their knowledge.

In the Sacramento suit, which is pending in Superior Court there, one defendant alleges that his rates on a six-month policy jumped by $120.

Hufschmidt's suit claims that Allstate supervisors sent e-mails to agents instructing them in methods of raising clients' mileage status without having to inform them of the change.

The lawsuits and impending sanctions are the latest problems for Allstate in California.

Allstate was denied permission this year to use the Department of Motor Vehicles' computer database after an Insurance Commission investigation uncovered numerous violations of confidentiality rules.

The insurer has previously acknowledged some lapses in its customer confidentiality procedures.

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