New Jersey Department of Banking &
|For Immediate Release: July 2, 2003||
For Further Information:: Mary Caffrey - (609) 292-5064
COMMISSIONER BAKKE REJECTS AGENTS' COMPLAINT
THAT ALLSTATE TRIED TO AVOID 'TAKE ALL COMERS'
TRENTON, N.J. -- Banking and Insurance Commissioner
Holly C. Bakke today found that Allstate New Jersey's marketing and agent compensation
practices, which were the subject of a complaint by 16 Allstate agents, do not
violate a 1990 law requiring the state's auto insurance companies to cover all
but the worst drivers.
In her finding in the case of Corsaro, et al. vs. Allstate New Jersey, Commissioner Bakke found that the company's marketing strategies, bonuses and office expense schedule were designed to ensure Allstate's financial stability while serving drivers in all areas of New Jersey.
Bakke was charged with determining whether the Corsaro complaint, filed in November 2001 and amended five times by the petitioners, constituted a threshold violation of the Fair Automobile Insurance Act, (FAIRA), the law that created "Take All Comers" as a means of depopulating New Jersey's residual market.
This feature of the New Jersey auto insurance
market requires carriers to cover all drivers with fewer than nine points and
has contributed to the poor financial condition of several auto insurers, notably
State Farm Indemnity. Once the largest auto carrier in the state, State Farm
Indemnity petitioned to leave the state in 2001, is no longer writing new business
and has permission to leave after 2005. "Take All Comers" will be
phased out over five years under reforms signed June 9, 2003, by Gov. James
The 16 agents alleged that Allstate sought to avoid urban business by linking bonuses and office expense compensation to loss ratios, by requiring agents to meet targets for selling other insurance products, and by moving some of the agents to new locations, which for some resulted in a loss of income. The petitioners also asserted Allstate marketing strategies, which targeted certain suburban areas and not urban areas, constituted a violation of FAIRA.
Bakke disagreed, stating that the requirement to sell auto insurance to all eligible drivers does not prevent a company from developing a statewide business plan. An earlier court ruling, known as the Gaydos decision, found "the legislative history is clear that the goal of FAIRA is to benefit New Jersey insureds, not insurance agents."
"We know from experience that a failure to balance urban auto business with suburban auto business results in carriers being unable to write any auto policies at all," Bakke said.
The 90-page finding notes that trends in the number of urban auto insurance policies sold by Allstate after 1998 must be viewed against the backdrop of other changes in the market at that time. In 1997, the Legislature created tier rating and the Urban Enterprise Zone assignment system, and Allstate had more than its share of urban business at the outset of those changes. Tiering changes filed by Alsltate resulted in higher prices for higher-risk drivers, particularly when compared to other insurers that needed to attract more urban drivers to meet their UEZ allotments.
As a result, Allstate saw a temporary drop in the number of urban auto policies, but that loss has since been regained, Department statistics show. Allstate's UEZ risks stood at 78,282 on December 31, 2002, up from 74,688 at the close of 1999.
"(Allstate New Jersey's) fulfillment of its obligations under the UEZ Act and its Territorial Rating numbers are compelling proof that the results of its business plan and marketing approaches are consistent with the objectives of FAIRA," the finding states.
An investigation by the Department of Banking
and Insurance and responses submitted by Allstate showed that three relocated
agents had worked in offices where massive episodes of fraud were discovered
and co-workers prosecuted. "Certainly, policyholders benefit when insurers
take action against fraud," Bakke said.
In another case, an agent was relocated several times due to retirements and restructuring of Allstate's agent system. The Department found that relocating the petitioners typically did not result in fewer exposures in the UEZ areas near their current or former offices.
Bakke also addressed the allegations of petitioner
Charles DiCataldo, who claimed he was fired due to heavy losses on the auto
policies he sold. The findings state that while DiCataldo's loss ratio were
one element of his performance reviews by Allstate, his firing was the result
of his failure to cooperate in Allstate programs designed to help agents meet
certain sales and performance standards. "Nonetheless, I am directing Allstate
to clarify to its agent force the criteria that can lead to termination based
on performance," Bakke said.
The opinion outlines numerous amendments and submissions by the petitioners after the case was referred to the Department in the fall of 2001. A February 2003 letter accuses Allstate of "redlining" in circumstances unrelated to the petitioners and will be examined separately, Bakke said. "Because of the importance of this issue, I am directing the that the Department's Consumer Protection Services unit to conduct a second examination immediately, as these allegations appear inconsistent with Allstate's UEZ compliance."