Allstate’s strategy of pulling back from homeowners policy risk pays dividends

This Dave Carpenter story, I thought, is a refreshingly sober and even-handed look at Allstate’s strategy to reduce risk from homeowners policies.  A couple excerpts:

The Consumer Federation of America says the Northbrook, Ill.-based company favors investors at the expense of consumers and has engaged in price-gouging. Sen. Trent Lott, R-Miss., has repeatedly assailed Allstate and other big insurers for what he claims is negligence since Katrina and even sued State Farm for related claims, ultimately settling the lawsuit. He is pushing to crack down on the industry through various legislative initiatives.

"It’s OK to make a profit, but they are ripping people off," said J. Robert Hunter, the consumer group’s insurance director. "Why are they so risk-averse? If they’re not going to take on risk, what do we need insurance companies for?"

Despite the fact that Allstate failed to make an executive available to be interviewed for the story, citing its mandated quiet period before its earnings announcement, the writer didn’t burn the company, but instead found other people to give the other side of the story:

Banc of America Securities analyst Alain Karaoglan said in a research note last week that heavy exposure to catastrophes in its homeowners’ business has long been Allstate’s Achilles’ heel.

He applauded the company’s increased pricing discipline, reflecting the prevailing view on Wall Street.

"It’s purely model-driven, it’s purely risk-driven _ it’s not like they hate Florida or anything," said Morningstar analyst Matt Nellans. "What people don’t see is that for 10 years they were writing underpriced insurance and nobody complained about that."

Increasingly, the story says, Allstate is banking on more profitable auto lines than on homeowners policies.  In a related development, here is a story by Lavonne Kuykendall about the growth of Geico in the auto insurance market.  Gotta love that caveman.  Geico, however, better enjoy the caveman’s ride while it can — when CNA once again breaks out the CNA Polka Boys for their ads, the caveman will be ancient history.   Just out of curiosity, does anyone know the Polka Boys?  Are they still polkaing?

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