Allstate Files for 25% Rate Hike in Georgia

Georgia Insurance Commissioner Ralph Hudgens put out a "consumer alert" this week in response to Allstate calling for a near unprecedented auto insurance rate hike of 25%. This call is just the latest occurrence in a state that has allowed numerous rate hikes in recent years given recently relaxed regulation, as we explain in this article.

Georgia Insurance Commissioner Ralph Hudgens issued a consumer alert in response to an Allstate filing for a 25% auto insurance rate hike. The rate hike is to be implemented on May 22, 2016, and is estimated to affect about 50% of Allstate customers. Allstate is the second largest insurer in Georgia, with about 11% of drivers. Hudgens has criticized the filing saying he is “deeply concerned.” Although the rate calls for a 25% or a 1.25x increase in premiums, Hudgens has said, “many policy holders should be prepared to see a rate change as high as 58.3%."

There has been an obvious backlash to the announcement. Allstate hoped to assuage peoples concerns when a spokesperson issued a statement to local station News 12 On Your Side. The statement addressed how Allstate “adjust(s) rates very carefully to charge properly for the risk we assume and ensure our ability to protect customers from life’s uncertainties.” They go on to cite, “Increases in the number of miles driven, the amount of traffic fatalities, and the costs associated with repairing vehicles have caused the insurance industry to experience a significant increase in both the number of claims received as well as the cost associated with settling these claims.”

Lower gas prices in the past year have indeed increased the number of people on the road. This in turn tends to mean there are more accidents, which results in higher costs to carriers, and subsequently increases in rates charged to consumers. Both Allstate and GEICO reported losses in underwriting income, or income from policy holder premiums, in their 2015 10K filings. It makes sense that in order to keep business solid, they would need to increase their rates to make up for higher expenses.

The decline in gas prices and higher road travel is a national occurrence, so how have other states followed suit to rate hikes? The answer is not as drastically as Georgia. According to SNL RateWatch data, the national average rate change between the start of 2015 and 2016 was 5.3%. In Georgia, the average rate change was 10.65%, the highest of any state. Allstate had the 4th highest rate hike with a 13.4% increase in rates, with other companies such as GEICO and Farmers raising rates by 19.9% and 18.1% respectively over the same time period.

The single proposed rate hike slotted for this May would be larger than any single hike in 2015. In the past five years in fact, there have only been three hikes greater than 25%: a 2011 American Family Insurance group hike of 25.3% in Florida, a 2014 Nationwide hike of 25.2% in Hawaii, and a Farmers hike of 25.5% in Missouri in 2012.

Georgia car insurance rates may be so vulnerable to rate hikes because of reduced oversight from its state government. Hudgens expressed frustration at his inability to take any direct action toward curbing the rate hike saying, “Georgia law prohibits me from stopping or delaying this increase unless an actuarial examination proves the rate to be legally excessive.” In 2008, the Georgia senate passed a law that allows insurance companies to raise rates without state approval. Surprisingly, one of the leading proponents of that bill was Ralph Hudgens himself. Hudgens once told the Atlanta Journal-Constitution, “In every industry I have seen, when you have competitive forces rather than regulations controlling an industry, it is a healthier and more vibrant industry and better for consumers.” Hudgen's predecessor as Insurance Commissioner, John Oxendine, would most likely contend with that statement as he forewarned of large rate hikes when the bill passed during his term. He said, “You are either going to have a regulated market or an unregulated market. I think insurance is a product where regulation is appropriate.”

According to the R Street Institute 2015 Insurance Regulation report, Georgia is actually only the 17th worst state when it comes to regulating auto insurance. The top spot goes to Michigan, which, although it didn’t lead the rate increase pack in 2015, has seen companies like Allstate and GEICO increase rates 78.4% and 56.4% respectively since 2011 against a national average of just 18.2%. Bear in mind that auto insurance premiums in Michigan tend to be much higher compared to other states due to its coverage requirements.

As with most things involved with insurance however, there is never a simple one to one correlation. Not every state with stricter regulation than Georgia saw large rate increases, just as not every state with more lenient insurance regulation maintained steady rates. Rather, it is most likely the combination of random weather events such as snowstorms in southern Georgia, more drivers on the road, and less strict regulatory environment has fostered an environment for auto insurance rates to increase dramatically. If anything, this could be foreboding for other states with more lenient insurance regulation. Weather and gas prices are difficult to predict, but states with less regulation do have more consistency. If circumstances such as the ones affecting Georgia were to happen to those states, it could in fact lead to dramatic hikes in them as well. For now, the Allstate customers of Georgia can now only hope an actuarial board will deem the hike unnecessary.

Craig Casazza

Craig is a former research analyst at ValuePenguin covering property and casualty insurance, including auto, homeowners, renters and motorcycle insurance.

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