Following criticism, Allstate yanks ‘innovative’ good-driver discount program from California

Allstate Insurance says complaints that one of its auto insurance products violated California’s provisions regarding good-driver discounts and discriminated against good drivers are “absolutely nothing more than a creative work of fiction.”

The country’s second largest auto insurance company recently agreed to stop offering its Your Choice Auto insurance program in California after a challenge by Consumer Watchdog, a California-based consumer advocacy group. The decision affects about 150,000 policyholders in California.

“It has been no secret to Allstate that the (Consumer) Watchdog has been hammering away at Your Choice Auto with some kind of a fantasy world of accusations,” says Bill Mellander, a spokesman for Allstate.

In California, Allstate charged Your Choice Auto policyholders up to 15 percent more than normal premiums. In exchange, consumers were promised that future traffic tickets or accidents would not cause a rate hike.

Todd Foreman, staff attorney at Consumer Watchdog, told InsuranceQuotes.com that Your Choice Auto violated the 1988 California voter-approved initiative known as Proposition 103. Among other things, the proposition mandates that good-driver discounts should be at least 20 percent below normal premiums.

Thousands of auto insurance customers in California will be affected by Allstate’s decision to discontinue the controversial Your Choice Auto program.

Good drivers who had signed up for Your Choice Auto (YCA) were not getting a full 20 percent discount, Foreman says.

Asked by InsuranceQuotes.com about Allstate’s exit from Your Choice Auto, California Department of Insurance spokesman Ioannis Kazanis would say only: “This was a business decision that Allstate made on its own, and that’s all we’re going to say about that.”

‘Deceptive’ or effective?

Consumer Watchdog says Allstate received $20 million a year in extra premiums from Your Choice Auto policyholders in California. Foreman believes consumers who bought Your Choice Auto policies because of the ticket and accident forgiveness features were getting unnecessary coverage. Consumer Watchdog calls the program “deceptive.”

“First, in California, you can have a ticket, go to traffic school and if it’s your only ticket in the last 18 months, it is not revealed to your insurance company,” Foreman says. “Second, according to Allstate’s own numbers, over 90 percent of their drivers have not had an accident in the last three years, and so the vast majority of their drivers wouldn’t need YCA — but this fact wasn’t revealed to its customers.”

Mellander argues that Your Choice Auto was meant to provide more auto insurance choices to California drivers.

“Does YCA make money for Allstate? Absolutely it does, and that is absolutely nothing that an organization should be ashamed of,” Mellander says. “YCA also provides customers the opportunity to make choices about the kinds of coverage that fit the needs of their families.”

In the summer of 2010, Consumer Watchdog presented its arguments against Your Choice Auto to Administrative Law Judge Kristin Rosi, who ordered Allstate to release thousands of pages of information related to the discount program.

Allstate decided not to release the documents. On Dec. 10, 2010, then-California Insurance Commissioner Steve Poizner granted Allstate’s request to pull Your Choice Auto from the California market, effective Jan. 10, 2011.

Mellander says Allstate’s decision to drop Your Choice Auto in California was prompted, in part, by the company’s desire to withhold trade secrets.

“A company like Allstate or any organization of our size gets requests for information all the time and with YCA, there are proprietary elements to this product,” Mellander told InsuranceQuotes.com. “YCA is unique. It’s innovative. And over the last couple of years, we’ve had competitors who’ve tried to replicate YCA. There are things we think we can do better than anyone else can, and that kind of information needs to be protected.”

Impact on other states?

Allstate offers Your Choice Auto in 47 other states. The company plans to continue the program outside California.

The California Department of Insurance approved Allstate’s Your Choice Auto program in 2008. By November 2011, each of California’s 150,000 Your Choice Auto policyholders will be switched to other Allstate plans, Mellander says.

Foreman, the Consumer Watchdog attorney, says California has the only voter-approved initiative that strictly regulates the property and casualty insurance industry, including auto insurance. A similar initiative in Michigan failed to gain the required 340,000 voter signatures for state lawmakers to consider putting it on the November 2010 ballot.

“Hopefully, other states will look at YCA and determine whether it’s priced adequately and whether consumers are receiving significant benefits from the program,” Foreman says. “Our research revealed that YCA was not giving consumers any additional coverage.”

–Kevin Lyons