Allstate to Comply with N.Y. Anti-Tying Rule on Home Nonrenewals

Allstate Insurance Co. and its affiliates have agreed to comply fully with a directive by the New York State Insurance Department that insurance companies may not refuse to renew homeowners insurance policies based on whether a policyholder also has an automobile or life insurance policy with the same company, according to Insurance Superintendent Eric Dinallo.

On Aug. 28, Dinallo’s department issued a directive (Circular Letter 11) instructing all property/casualty insurers to discontinue the practice of non-renewing homeowners insurance policies based upon whether or not the policyholder had other insurance business, such as automobile or life insurance, with the insurer or its affiliates.

The letter directed any company that had issued a notice of non-renewal on that basis to immediately rescind that notice if it had not yet taken effect.

On Aug. 31, the department issued a citation to Allstate following what the department said was the company’s refusal to comply with the circular letter. The department called for a Sept. hearing and threatened fiens and disciplinary action against Allstate.

However, according to the department, since Allstate has now agreed to fully comply with the circular letter, the department will have no public hearing but will instead discuss the non-renewal rule with Allstate.

State officials had said previously that there would be no discussions until and unless Allstate first agreed to comply. “We are willing to dialogue with Allstate once they are in compliance,” a department spokesperson told Insurance Journal last week.

Allstate has said it believes it is within its rights to non-renew based in part on whether the insureds also have auto or life policies with the company.

The non-renewal tactic is part of Allstate’s strategy to reduce its coastal exposure in the state and the insurer maintains that its practices comply with state insurance law.

But the department claims the practice of tying renewal of homeowners policies to other business violates anti-rebating and anti-discrimination sections of the state’s insurance law.

By law, insurers must inform homeowners of the reason or reasons for a non-renewal. In letters to select homeowners, Allstate has been telling insureds that their not having a life or auto policy with Allstate as of Oct. 7, 2005 is one of the reasons the company decided to not renew their home policies. The company said it picked an arbitrary date for the cut-off.

Allstate says it has been using the controversial non-renewal language for 18 months but only learned of officials’ displeasure with the practice after the state officials on Aug. 28 released a new Circular Letter 11 banning the practice.

Three days later, on Aug. 31, the department cited Allstate for its refusal to comply with the Circular Letter.

Allstate says it attempted to make contact with Dinallo and responded to the department in writing. “In our written communication, we believe we addressed the concerns raised by the department,” said Krista Conte, Allstate spokesperson in New York. She would not elaborate on Allstate’s response.

After it sent its written response, Allstate received the citation from the department.

NYSID officials allege that the tying of homeowners with other policies is an unlawful inducement. They maintain that the non-renewal practice “unlawfully discriminates” against Allstate homeowners policyholders who do not have other insurance coverages with the insurer and “confers a special favor, benefit, advantage and/or other type of valuable consideration” upon insureds with an Allstate life policy, a benefit that is not specified in the policy.

Another insurer, Liberty Mutual, was caught using the same tactic but quickly agreed to comply with the department’s rules, according to the department.

According to the department’s lawyers, the notice “clearly states that the non-renewal is a direct result of the policyholder’s failure to purchase and maintain other coverage from the particular company.” Consumers who had been renewed “would reasonably infer that their insurance company might elect not to renew them on the next annual renewal date if they did not maintain their other policies with that company,” they argue.

When releasing Circular Letter 11, Dinallo said the insurance department acted after receiving complaints from homeowners in coastal areas about losing their policies.

Dinallo maintains that in addition to harming consumers, the practice does not make sense for insurers.

“The insurance companies’ actions contradict what they are telling policyholders and regulators. They say they are trying to reduce their exposure to the risk of losses from hurricanes. But pressuring people to buy homeowners and auto or life insurance actually increases the insurers’ risk,” Dinallo said.

“This is obvious when one company’s plans allow it to renew a wood frame house – which is more susceptible to hurricanes – if the owner also has an auto or life policy, but not renew a brick house right next door because the owner has no other insurance with the company,” added Dinallo.

He said that while insurance companies have the right to reduce their exposure to risks such as hurricanes, they must follow certain rules. For example, they can only not renew a maximum of four percent of their homeowners policies statewide in any one year.

Allstate writes about 650,00 homes statewide. Its non-renewal effort is concentrated downstate, where it writes about 25 percent of the homes. Allstate said it was complying with the four percent limitation.