SACRAMENTO — Allstate said Thursday that it would stop selling new home insurance policies in California and would continue to seek a 12% rate increase for its 900,000 existing customers.
The state's third-biggest home insurer announced the cutoff Thursday, saying it needs to better manage the risk of potential losses related to wildfires and fires caused by earthquakes that might sweep the Golden State.
"Allstate is taking responsible action now so that the company will continue to be in a strong position to help protect customers in California and across the country," said Robert H. Barge III, the insurer's vice president for California.
In recent years, the Northbrook, Ill., company has stopped writing new policies in all or parts of 15 hurricane-prone states, covering most of the Gulf and Atlantic coasts.
The announcement delighted Allstate's competitors that foresaw picking up new business, but it infuriated consumer activists and some government officials who say the company's move was a cynical way to reap profit while avoiding risk.
"Nobody objects to an insurance company making a reasonable profit, but in this case it really puts into question whether we're really in 'good hands' with Allstate," said state Sen. Michael Machado (D-Linden), chairman of the Banking, Finance and Insurance Committee.
Insurance Commissioner Steve Poizner said he wasn't surprised by Allstate's actions in California because they "mirror its recent retreat in other markets such as Florida and New York. Poizner called the company's decision "shortsighted," but he stressed that Allstate had a right "to choose where it does business."
Nevertheless, he predicted that consumers should have little trouble buying new policies because most companies have reduced the cost of homeowner coverage. He also pledged to carefully scrutinize Allstate's September request for a rate hike and make the company prove why it shouldn't reduce its premiums instead.
Policyholder Guy Nemiro of Hancock Park said he was shocked that Allstate was seeking to increase rates. "It's a free market; I may want to shop around," he said.
Allstate spokesman Rich Halberg said his company intended to continue to pursue its rate increase proposal for current policyholders.
In contrast, last year, major companies cut rates after a drop in claims helped them to earn strong profits in 2004 and 2005. State Farm Mutual, the biggest home insurer in the state, reduced premiums by 20%, and No. 2 Farmers Insurance Exchange took an 18% reduction. State Farm and Farmers collectively cover 2.7 million homes.
