Allstate to refund $17 million

Md. also fines insurer

letters on rates failed to comply with law

October 20, 2006|By Meredith Cohn | Meredith Cohn,SUN REPORTER

The Maryland Insurance Administration ordered Allstate Insurance Co. yesterday to pay refunds averaging $850 to more than 20,000 drivers in the state who were improperly notified by the insurer to pay higher premiums after they caused an accident or received a speeding ticket.

Allstate owes the money - $17.5 million and a $100,000 fine - because it failed to use specific language required by Maryland law when it sent letters to customers outlining the higher rates.

State officials characterized the refund as one of the largest in Maryland's recent history, and the fine is just shy of the $125,000 that the agency is legally allowed to impose.

An Allstate spokeswoman acknowledged the mistake, calling it a technicality that the insurer had failed to follow state requirements in its letters to customers about the increases between 2003 and 2005. She said Allstate customers eligible for refunds already have been notified about receiving a reimbursement or credit. Allstate, one of Maryland's largest auto insurers, has 460,000 policyholders here.

Insurers typically increase premiums when a driver is cited by police for causing an accident, speeding or other traffic violations.

In Maryland, insurers do not need state approval to raise rates, but they must notify policyholders 45 days in advance and use specific language when outlining the increase. In this case, the wording of the letters sent to policyholders was not precise enough, according to state regulators.

Insurance regulators looked into the matter after several consumers complained about their rate increases.

"We initially received a few complaints, and when the claims department looked into it, they noticed a pattern," said Darlene Frank, a spokeswoman for the state insurance administration. "The agency determined that the company was not complying with insurance code."

Debbie Pickford, an Allstate spokeswoman, said that all of the policyholders who got letters of increases - between Jan. 1, 2003, and March 1, 2005 - had a past accident or violation that warranted a rate increase.

"Maryland law requires very specific statutory language about why exactly you are raising the rates," Pickford said. "We regret some of the notices we sent were not in compliance with state language. As soon as we found out about it, we did everything we could to rectify it."

The Northbrook, Ill.-based company, which reported third quarter earnings Wednesday of $1.16 billion, said the company does not intend to seek new rate increases for those customers.

Because the company was not accused of significant wrongdoing, the refunds were not a significant win for policyholders, said J. Robert Hunter, director of insurance for the Consumer Federation of America and a former Texas insurance commissioner.

"Obviously, you need to make sure insurers are following the rules," he said. "If the price was raised because someone had a violation, and the insurer technically wrote the letters wrong, that's less of a victory for consumers than catching a company that is really hurting people."

The Maryland Insurance Administration said it has ordered several refunds in recent years.

Monumental Life Insurance Co. was ordered in June 2003 to refund or adjust benefits totaling $32 million to about 600,000 policyholders across several states after officials concluded the company engaged in race-based pricing of life insurance.

Assurant Group was ordered in June 2004 to return $6.5 million to 320,000 Marylanders for charging excessive rates for credit insurance.

Nationally, the figures are higher.

Prudential Life Insurance Co. was ordered in 1996 to pay restitution to thousands of policyholders in several states that has amounted to more than $2.6 billion and to pay $35 million in fines after a multi-state task-force concluded that customers seeking life insurance were defrauded.

In 1999, Metropolitan Life Insurance Co. said it would pay $1.7 billion to 7 million policyholders and millions in fines to settle claims of deceptive sales practices.

meredith.cohn@baltsun.com

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