Allstate brings carrot & stick to California: could walk out altogether

US retail property insurer  Allstate could further tighten the screws on its business in California if the state fails to adjust its approach to rate approval, likely including allowance of catastrophe modelling and reinsurance costs in rate considerations, Allstate’s chief risk officer Parr Schoolman indicated during a public hearing.

“Allstate would prefer to materially re-enter the market,” Schoolman told a public hearing about the potential utilisation of catastrophe modelling in regulatory rate considerations.

“Without pricing enhancements, Allstate will remain closed to new business,” he said, with further warning his firm would consider rolling out some programme or non-renewals or even “full withdrawal from the property market.”

Warnings of further action follow decisions by Allstate and rival State Farm, with a combined 13.5% of the California homeowners market, to put the kibosh on new business in California. Farmers Insurance, the market’s #2, has had to place caps on new business to avoid mopping up too much of the slop. Reports have indicated that Nationwide has also established limits on new business.

“Change is needed to restore California to a healthy insurance market,” Schoolman said. Schoolman claims Allstate is stuck with California rates “43% lower than many other states with high risk for catastrophe events.”

Allstate offered some carrot to go along with its stick. Were regulatory rate construction to be built on cat models and include reinsurance costs, Allstate could roll out an offer addressed to as much as 90% of the California market, Schoolman said.

California opened the hearing as it mulls options to include catastrophe modelling into regulatory rate approval processes, but warned it won’t give ground on public disclosure laws.

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