Allstate Attempts to Realign Exposures through Nonrenewals

Multiline insurers such as Allstate have begun nonrenewing the policies of some customers who don’t bundle their home and auto coverage not only due to the costs of recent natural disasters nationwide, but also in an ongoing attempt to reassess their exposure to potential future losses, according to one industry expert.

That means companies are not dropping policyholders based just on the massive losses many have suffered this year—particularly on residential coverage—due to recent weather-related catastrophes, Steve Weisbart, vice president and chief economist at the Insurance Information Institute (III), said in a phone interview.

“In recent years, most insurance companies have been looking at the distribution of properties they insure with an eye to what’s happened recently and what’s likely to happen,” Weisbart said.  “They’re asking, ‘Do we have too much concentration of value in one area?’ And if the answer is yes, they’re going to at least review exposure with an eye to nonrenewal of some risks.”

Allstate officials recently confirmed they will not renew the residential policies of about 4,000 customers in Arkansas and more than 45,000 residents in North Carolina if they do not also purchase vehicle coverage from the company.

An Allstate spokeswoman in Arkansas said the effort is meant to manage overall risk in the state’s property coverage market. The company is one of many to report major losses to severe weather this year, with Allstate suffering $1.08 billion in catastrophe losses in the third quarter alone, slashing profits for that period 55 percent.

According to federal meteorologists, a dozen major catastrophes nationwide this year have resulted in a combined $52 billion in economic damages.

Arkansas has been impacted along with others by four of those events, including flooding in spring and tornadoes, and North Carolina was one of many East Coast states hammered in late August by Hurricane Irene, which officials say racked up $7.3 billion in insured losses.

A.M. Best reports that property and casualty insurers saw an estimated $38.6 billion in pretax, total net losses during the first three quarters of the year, when policyholders filed claims for damages on everything from North Carolina auto insurance policies to Texas homeowner coverage.

Of course, insurers calculate their risk in issuing a policy on many factors, not just the possibility of extreme weather.

But the choice of whether to renew a homeowner’s policy could be made a bit easier by the fact that insurers haven’t suffered the same volume of catastrophic losses on auto policies as they have on residential coverage.

“If you have a house insured at 802 and another at 807 Main St., you’ll nonrenew the one that is less profitable. So if one has a car or something else insured, that’d be better for them,” Weisbart said, “Some of the nonrenewals are a product of the reassessment of what the impact would be if there were another major event—a hurricane or whatever.”

Weisbart’s insight adds to other recent information from III, including a report issued earlier this month that found private auto coverage is by far the most profitable coverage line in the nation.

While a bad economy has kept the amount of auto premiums collected relatively flat for a decade—net written premiums rose by less than 3 percent, compared to a 6.4 percent increase for homeowner premiums—vehicle coverage providers have sidestepped some of the problems that have caused big losses for other insurers.

About John Pirro
John Pirro is a licensed fire and casualty insurance agent specializing in various aspects of the auto insurance industry. He worked in the auto body repair industry before taking a reporting position at Online Auto Insurance News.

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