Allstate Floridian, a subsidiary of Allstate Corporation, was originally formed in 1996, in the political aftermath of Hurricane Andrew that struck Florida in 1992. It’s purpose was to be a stand-alone company that would help to isolate its parent corporation from severe catastrophe losses in Florida. After years of chaos in the Florida property market, the creation of a state-mandated and state-funded property market, and the insolvency of nearly a dozen property insurers (including others that left the state before insolvency), the Florida marketplace for property insurance was significantly desolate.

Allstate, looking to keep its profitable auto insurance business alive in Florida, resolved to solve this problem with the creation of an entirely separately-capitalized company. It would have its own ratings, its own funding, and most importantly, Allstate Floridian’s losses would stay with Allstate Floridian - ideally, not affecting the millions of other policyholders around the country.

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At the time, it seemed like the right thing to do. The law of large numbers was trampled in an effort to mitigate growing concern, especially among Allstate investors, that Allstate, like many other large insurance companies at the time, was in danger of being sunk financially by the growing risks of a single state.

The roughly ten-year experiment was apparently, a failure.

In early May, Allstate Floridian president Phil Lawson announced that a newcomer to the Florida insurance market, Royal Palm Insurance Company, had been arranged to take over the vast majority of nearly 120,000 state-wide policyholders that Allstate Floridian declined to renew, approximately 15% of Allstate Floridian’s entire book of business. The majority of these policies are located along Florida’s populated coastlines. Allstate Floridian previously did a similar deal with a company called Clarendon National.

A great many of these customers have already been switched from one company to another since the days of Andrew. They have lived each year not knowing if they would be able to find property insurance the following year - and if they could, if they would be able to afford it. Those who have not yet experienced this are probably an ever-growing number of newly transplanted people who have moved to Florida in the past few years.

Allstate Floridian’s main concern, besides placating investors and insurance rating companies, is to pacify nearly 900 Allstate agents across the state. These agents have been battered over the years by the market ups and downs and have questioned the value of being an Allstate agent when, apparently, the company is not in the business of providing insurance or remaining competitive in their better markets. The significant loss of income to these agents, should they not be able to offer their customers an alternative to Allstate Floridian, may put some agents out of business, and for many others, begin the downward trend of selling off their books, retiring early, or simply converting to independent agencies. That last move, by any significant number of agents in Florida, would not only affect Allstate Floridian, but would have a noticeable impact on Allstate Corporation’s bottom line.

To keep these agents in play, Allstate Floridian aggressively pursued other companies who would be willing to let their 900 Florida agents continue to be the “agent of record” on the new policies. Of course, a new company, without an agent force already in play, was the obvious choice - despite the possible disadvantages to the consumer.

However, many of the customer’s who will be non-renewed will have little choice but to take the policy they are offered by Royal Palm. They live in areas, typically within a dozen miles of the coastline, that have been ravaged by storms over the past five years. The company, as of this writing, is not even rated (or acknowledged) by A.M. Best, the industry’s most commonly-referenced rater. An even casual look at Royal Palm’s website should be enough to scare most consumer’s away for a long time. It looks as if it was created in about 12 minutes.

What can Consumers do?

  1. Don’t panic. Screaming and venting won’t change anything. If you want an outlet for your anger, your local Allstate agent isn’t likely going to be a worthwhile source for solutions. They aren’t too happy about it either, and more importantly, it wasn’t their decision. And certainly don’t waste time contacting Royal Palm - they already seem to have their single fax machine jammed up with Allstate agents trying to fax in their new agent agreements. Instead, try contacting the Florida Department of Financial Services and tell them you are unhappy with this deal - that it lets Allstate Floridian off the hook for their own financial mistakes, and that it places you at greater risk (and exposure) from a very new company with no experience in the Florida property market - one of the most challenging in the world. You’ll also be paying (quite likely) higher raters for this policy as well. Inform the department that you will remember this at election time. It might not hurt to contact Allstate corporation (not Allstate Floridian corporation) and let them know that you will be looking for other avenues for all your other policies as well if they stay this course.
  2. Be patient. Even though this was just announced, it could be up to a year or more before your particular policy is affected. In the meantime, you’ll be getting letters both from Allstate and your agents. You don’t have to decide anything today. Now is a good time to begin shopping around your other policies. You may not have much choice with your property policy, especially during hurricane season. If this season is particularly quiet in Florida, you may have more options in January of 2007.
  3. Realize that, even though this is a giant pain and an additional cost, that Florida is still one of the best states to live in. We have our weak points, but a nice 65 degree evening in November can make it all worthwhile. So, lay back and enjoy the good stuff in Florida and keep it all in perspective.

What can the Allstate Agent do?

  1. Fight back a bit. If you believe that this move from Allstate Floridian particularly harms your customers’ ability to protect their assets, consider writing to Mr. Lawson, along with the board of directors of Allstate. This holds especially true for those agents who own Allstate stock. A letter to the FDFS wouldn’t hurt, either. See what other options you can find for your customers. You might have to hold their hand as they walk out your door, but if you believe you can find them a policy with a better company elsewhere, you are only doing what is morally right (and technically, obligatory under your state license).
  2. Don’t hide. Don’t let the Allstate letters to your customers be your only communication. The tendency to want to crawl under your desk should be avoided. Develop as much information as you can to give your customers - both in the office and in the mail. Don’t preach to your customers about the horrific billion dollar losses that happen every year in Florida - they really, truly don’t care - and it makes you sound like you are overly defending both Royal Palm and Allstate Floridian. Don’t let Allstate tell you what you can and can’t say to your customers. You be the voice of reason and guidance in the turbulent seas.
  3. Be specific. Keep in mind that people are completely hampered with the daily grind. They don’t like to worry. The letters that Allstate is going to send out is going to be nothing more than corporate polliwog nonsense. It will give few specifics and leave tons of unanswered questions in its wake. You need to let every customer know at least three things so that they can remain calm and go about there business, knowing that they are in “good hands” with you as their agent (see below). They need to know what they need to do.

How Agents should Inform their Customers

  1. Your affected customers need to know, first and foremost, when they will be given the information that will begin the decision making process. Once you are informed from Allstate Floridian as to the date their non-renewal letter will be generated, that date needs to be communicated to the customer - either in relative form (i.e. 90 days before renewal) or as an exact date.
  2. They need to know when they will get their initial quote from Royal Palm and how much time they’ll have to shop or decide. As many agents know, the initial letter from Royal Palm will likely not have their full quote (including coverages). It is also rumored that the initial quotes will not contain replacement cost contents, and will need to be endorsed on. Considering that, each customer should be informed as early as possible that their initial quote may not reflect coverages equal or similar to their existing Allstate Floridian policy and that to ensure the smoothest transition, you will be contacting them at a particular time period to set up an in-office appointment.
  3. Lastly, they need to know about payment options. When any monies will be required to secure the new policy. An audit of all “mortgagee pay” policies should be done and those particular customers should be notified in a separate mailing to notify their mortgage companies as soon as possible that there may be a change to their insurance company. Some mortgage companies will mail the annual premium prior to being billed and this may cause problems as Royal Palm, being a new company, will likely require payment to place policies in-force. The unnecessary delay of check mailed to Allstate Floridian, which will likely be cashed and refunded before it can be caught, could jeopardize coverage for some customers and create extra work for agents.

For further reading:

  • Insurer to take Dropped Policies - St. Petersburg Times - May 16, 2006
  • Insurers Set to Squeeze even Tighter - The Neil Rogers Show
  • Burt bets against the Wind - Daytona Beach News-Journal - June 25, 2006
  • Allstate begins Canceling Policies - Florida Today - January 25, 2006 (prior to release of Royal Palm deal)
  • Florida Insurance Council White Paper on status of Property Insurance Market Heading Into 2006 Hurricane Season - Florida Insurance Council - May 26, 2006

Technorati : Allstate, Florida, insurance, property, takeout

Posted in: Management & Florida Life