Allstate raising homeowner rates
About 71,000 homeowners insured by Allstate Insurance Co. statewide will see their rates increase by 11.3 percent, while 73,000 Allstate Indemnity Co. policyholders will see an average increase of 5.4 percent, effective Aug. 30.
The higher premiums are the result of the rising cost of reinsurance, an industrywide trend, said Allison Hatcher, spokesperson for Allstate’s southern region.
“Allstate is making responsible business decisions to remain strong and positioned to deliver on its promise to customers,” Hatcher said. “This includes ensuring that our policies reflect the costs of providing insurance, including the cost of reinsurance.”
Reinsurance is the coverage that insurance companies buy to protect themselves from excessive claims. Typically that coverage makes up a larger portion of the premium in coastal areas, where there is greater risk of hurricane damage.
Rates for property and casualty reinsurance rose by an average of 7 percent in 2012, according to the Guy Carpenter U.S. Property Catastrophe Rate on Line Index.
The Allstate Insurance increase will generate $11.9 million, while the Allstate Indemnity increase will generate $5.0 million, according to records at the Louisiana Department of Insurance. Based on those numbers, the average annual increase would be $168 for Allstate Insurance policyholders and $68 with Allstate Indemnity.
The Allstate group of companies, which includes some other subsidiaries, is the second-largest insurer in the state behind State Farm.
Insurance Commissioner Jim Donelon said the rate increase will be the same regardless of the area percentagewise because the change is entirely due to higher reinsurance charges.
“Pre-Katrina, Allstate was one of the big companies that reinsured themselves through a sister company, in many cases if not all cases,” Donelon said. “This (rate increase) is 100 percent third-party reinsurance.”
Typically, insurance companies that base all or part of a rate increase on reinsurance just bring the Insurance Department the records showing the cost and it is passed along to consumers, Donelon said.
That’s a good thing, he said, because reinsurance is the answer to Louisiana’s coastal properties’ problem. Reinsurance allows the state to spread the risk around the world, Donelon said.
Roughly two-thirds of reinsurance is provided by offshore companies in Zurich, Bermuda and London that are not regulated by state or federal governments. The offshore companies can charge whatever the market will bear.
The rate increase won’t apply to policies that don’t include wind coverage, according to Allstate. The company was researching the number of homeowners’ policies that did not include wind coverage, but that information was not available late Tuesday.
Both Allstate companies received homeowner’s rate increases in 2010. Allstate Insurance raised rates by 11.6 percent after the Insurance Department rejected a request for an average hike of 27.6 percent. Allstate Indemnity increased rates by 3.3 percent in 2010.
Editor’s Note: This story was changed on Sept. 14, 2012, to correctly reflect that the rate increase went into effect Aug. 30 and are statewide.