No reinsurance for Louisiana cost Allstate $2 billion

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Allstate Insurance Co. failed to buy reinsurance last year to cover some of the cost of policies in Louisiana a gamble that cost the company $2 billion in claims, The Associated Press reported.

The company’s models did not predict a hurricane hitting Louisiana, attorney Edward Collins told a joint state legislative insurance committee. Allstate bought reinsurance for Texas, Florida, New York and other eastern states for 2005, but this year, the company announced its intention to lower its concentration of policies in coastal areas nationwide.

“You didn’t take care of your business, so the citizens of Louisiana have to pay for your mistake?” asked Sen. Don Cravins, D-Opelousas. “Now that you’ve had a loss, you put the burden on the backs of Louisiana citizens to pay for your shortcomings.”

The company maintained that even if it had purchased reinsurance for Louisiana, it would still be revoking wind and hail policies in 18 coastal parishes. “Even if we had $2 billion in reinsurance, we would still be pursuing the actions we’re pursuing,” Spokeswoman Kate Hollcraft said. “We were trying to do the responsible thing.”

Allstate plans to drop wind and hail coverage on 30,000 homeowner’s policies. Buyers with both homeowner’s and auto policies — about 110,000 customers — won’t be affected.

Senators and representatives pushed Collins for commitments that the company would not pull out of the state if it does not get to cancel wind and hail coverage in coastal parishes, as it plans to do starting Jan. 1.

Collins said that was always an option but not one the company plans to use, especially when Allstate believes it can withdraw wind and hail coverage.

Commissioner of Insurance Jim Donelon has pledged to fight that as a violation of state law. Under state law, companies cannot cancel or significantly change policies after three years of service unless they are financially unstable, the policyholder has filed three or more claims, there is a change in peril because of a change in the property, or the company is withdrawing from all coverage in the state.

Topics Louisiana Reinsurance

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