It's time for Florida to be a heavyweight on insurance

After Florida regulators stood up, at least briefly, to the giant Allstate Insurance Co. last week, I was leaning toward this headline for this column:

At last, state finds spine

Article Courtesy of The St. Petersburg Times

By Robert Trigaux
Published January 20, 2008

After Florida regulators stood up, at least briefly, to the giant Allstate Insurance Co. last week, I was leaning toward this headline for this column:

At last, state finds spine

After all, Tallahassee's been pretending to have a backbone in dealing with the powerful insurance industry since Hurricane Andrew bulldozed across south Miami in 1992 and introduced us to the modern era of mega-hurricane destruction and hyper-escalating insurance rates.

Last week's action showed some chops by Florida's chief insurance regulator, Kevin McCarty with ample blessings from Gov. Charlie Crist, when he banned all Allstate business in the state until the company delivers information sought by state subpoenas about how the insurer really decides the rates it charges homeowners.

It's been a long and frustrating contention by many Florida homeowners: If you want to get the attention of a big property insurer here, take away its profitable line of insuring autos.

For all of a day, the "You're in good hands" company became the "You're in tied hands" company.

Allstate quickly contested and, for now, defeated the regulatory ban. A state appeals court on Friday stayed the ban and put Allstate back in business in Florida, though it is still supposed to provide documents sought by state subpoena. Florida is trying to reimpose the ban and maintain the financial pressure on Illinois-based Allstate, which analysts say gets 9.4 percent of its premiums from business in this state.

Since Crist and McCarty opted for this strategy of confrontation - standing up to the playground bully - I hope they have the will and a high pain threshold to stay the course.

If you look a little closer at Allstate, this is a behemoth that thinks little of thumbing its nose at uppity state regulators and legal pressure. Its pockets are extraordinarily deep. And its executives have a history of girding for war. Consider:

- Allstate's Thomas J. Wilson may be celebrating his first anniversary as CEO, but he's a veteran of the company, and even served as vice president of strategy and analysis at Sears, Roebuck and Co. (which used to own Allstate). Why do we care? Because Wilson was one of the chief architects to help Allstate reorganize its Florida property insurance business into a separate, stand-alone company, Allstate Floridian Insurance Co. That key maneuver reduced parent Allstate's exposure to hurricane losses in Florida and, frankly, made it harder for state regulators here to delve into the parent corporation's records.

- As the Times reported last week, Allstate had no problem exiting Massachusetts when the insurance climate got too chilly. Though Missouri has fined Allstate $25,000 a day since September to honor its subpoena and fork over internal documents, the insurer is resisting. The fine is accumulating but Allstate is not paying. Yet these are but the tip of an iceberg of litigation against Allstate, especially in the devastating wake of 2005's Hurricane Katrina.

- A number of these lawsuits seek information from Allstate about the so-called "McKinsey Report," a document prepared in 1992 - right after Hurricane Andrew - for Allstate by the creme-de-la-creme management consulting firm McKinsey & Co. It reportedly outlines systematic, hardball strategies to become more profitable by paying out less in claims.

As documented by NPR, Bloomberg and other news sources, one slide McKinsey prepared for Allstate was titled "Good Hands or Boxing Gloves." Here's how it worked. When a policyholder files a claim, McKinsey advised, make a low offer. Treat the customer well if he accepts the low amount. If the customer protests or hires a lawyer, Allstate should fight back.

Florida regulators want to eyeball the details of Allstate's "McKinsey Report." So would a bunch of other states and trial attorneys. Allstate claims these are business secrets.

Good luck, Florida. If you mean it, get ready to rumble.