Allstate cancellations draw the scrutiny of Insurance Commissioner Jim Donelon
The Times-Picayune
March 11, 2007 By Stephanie Grace
It takes a pretty flagrant offense to get Insurance Commissioner Jim Donelon, generally a cautious and conciliatory sort, to draw a line in the sand.
How flagrant? Try dropping nearly 5,000 property insurance customers for supposedly not showing an intent to repair or move back into their homes after Katrina. That's what Allstate, the No. 2 insurer in the state, did the first moment its executives thought they could get away with it. The basis of their decision-making: quick drivebys and unsigned, undated and undetailed reports on the houses thus "inspected."
After receiving hundreds of complaints, Donelon's staff chose 18 purged properties to reinspect. In 14 cases homeowners already were back home. The other four customers were living in trailers while rebuilding their properties.
"This represents a 100 percent error ratio," Donelon wrote, and in case anyone missed the point, he ramped up the tough talk to declare Allstate's performance "totally unacceptable by any standard." That said, he ordered the insurer to reinstate all canceled customers and come up with a meaningful evaluation process.
"At best it was a very ill-conceived and sloppy inspection program," Donelon said Tuesday, in announcing his order. "At worst, they wanted off of those properties."
Harsh as these characterizations might be, Donelon was offering a disgraced company wiggle room through which to redeem itself, a last chance to show a little good faith and work with its regulators.
Allstate took a pass. It would not comply, the company announced, in asking a judge to block the Insurance Department order.
Allstate's complaint charges Donelon with singling the company out, forcing it to get approval for its inspection process when no other company needs to. It doesn't mention that no other company has dumped so much of its customer base in such haste, and with so little justification.
How careless was the Allstate inspection protocol? Let us count the ways.
On the 18 properties the department inspected, the Allstate report omitted the name of the inspector, the date of the visit, and any narrative "describing the condition of the property that caused it to allegedly be subject to cancellation," according to Donelon's order. Allstate's court challenge complains that the Department of Insurance has not interviewed the company's inspectors or their supervisors, but how would they know who they are?
Allstate's preliminary letters giving threatened customers 30 days to demonstrate progress also were undated, an oversight bound to panic customers who still might not be receiving their mail regularly.
And, in at least some of the 18 sample cases, the dropped customers had responded to those letters with information enough to have warranted reversing the cancellation, Donelon said.
Tough talk aside, Donelon's endgame isn't to bring Allstate to its knees.
His goal is to work it all out, to get Allstate to reinstate customers and put them back under the safety of the Louisiana consumer protection law that requires companies that have insured homeowners in good standing for at least three years to keep them on, absent a "material change in risk."
That's a worthy, practical goal, and it's typical of Donelon's approach to the job. He is not an insurance industry basher. Even as he's struggled to make Allstate more consumer friendly, Donelon has insisted that he wants to find a way to make the company comfortable in the market.
Whether its customers are comfortable is another matter entirely.
Regardless of whether Donelon's order stands, customers who remain in limbo need to make interim arrangements. And even if Allstate does take them back, who would trust that they're "in good hands" once they've been treated like that?
There's really only one message to take from the whole mess, said Robert Hunter, who, as director of insurance at the Consumer Federation of America, is keeping a close eye on the Louisiana market.
"I think it's unusual when you're in such a fishbowl as the Katrina situation to play such hardball," Hunter said.
"I think they really just want to get rid of people."
Say this for Allstate: At least the pretense is gone.
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Stephanie Grace can be reached at sgrace@timespicayune.com or (504) 826-3383.