EVERYONE EXPECTS insurance companies to be risk experts. Setting an insurance premium is, indeed, the actuarial science of probabilities: The probability that a policy-holder will experience health problems, that a driver will get into an accident with the family car or that a home or its possessions will be damaged.
So it is noteworthy, indeed, when Allstate Insurance Co., the state's No. 2 insurer, acknowledges that it may have set premiums so low for Maryland homeowners in the past that it must impose unusually large increases this year. Allstate has raised home insurance premiums with double-digit increases throughout the region, including 40.5 percent in some parts of Baltimore City, and 15 percent in Baltimore and Harford counties. .
While policy-holders certainly can expect premiums to rise, the most pessimistic could not have anticipated such a large single-year jump. No. 1 State Farm announced an increase on the heels of Allstate's news, although a smaller one. Allstate's hike was especially noteworthy because in 1995 it raised rates an average of only 6 percent and actually lowered them in some parts of the region.
The insurance director of the Washington-based Consumer Federation of America calls the increase "very much out of the ordinary and very surprising" outside of Florida or storm-battered seaboards. A lawyer for the organization chided the company for raising rates so high despite knowing its risks beforehand.
Allstate now is publicly second-guessing itself. Says Matthew Stegle, a company manager in its Fairfax, Va., regional office: "In hindsight, if we had asked for more rate increases of 10 to 15 percent over the past years -- maybe it would be different." The company, with an estimated 125,000 to 150,000 home insurance policies in Maryland, also blames successive harsh winters that battered homes with aging roofs. But it also will have to justify increases in auto coverage by more than 70 percent in some areas of Maryland.
No doubt, Allstate already has made a risk assessment of its decision. The company knows more than anyone, with the possible exception of its competitors, the probability that policyholders will shop for lower rates. It must live with the result of its business decision.
! Pub date: 9/12/96