Hands Off: Allstate Bails On Golden State

May 11 - KGO (KGO) -- Allstate, California's third-largest home insurer, is backing away from writing homeowners policies. Allstate claims the combination of high housing costs and all-too-frequent natural disasters is just too much for it to handle anymore. The very big insurance company is telling state homeowners to go pound sand and some believe it's all part of a very calculated bluff.

As Catalina Island continues to burn, Allstate says its decision to stop writing homeowners policies to new customers in California has nothing to do with the two big wildfires that broke out in the tinder dry Southland this week. Instead, the state's third largest home insurer analyzed years of data.

Rich Halberg, Allstate Insurance: "It just got to a point as we continually monitor the overall level of risk we thought the responsible thing to do now for our existing policy holders is to stop adding to the level of risk."

While Allstate's one million existing customers are not affected, the news still drew criticism from the Insurance Commissioner.

Steve Poizner, Insurance Commissioner (R): "The fact is an insurance company is in the business of taking risks. And for them to fear the risks here in California is just a mistake for consumers and a mistake for Allstate as a company."

Allstate has taken similar steps in other catastrophe-prone coastal states like Florida, New Jersey and parts of New York.

Earthquakes, mudslides and flooding have also proven California to be an expensive state for home insurers. The 2003 Cedar Fire alone cost Allstate more than $300 million dollars.

But consumer groups point out less than 40-cents of every premium dollar has gone to paying claims since then. They say the new policy ban is really a bullying tactic to get the state to approve a 12-percent rate hike during a time when its competitors are dropping rates.

Richard Holoberg, Consumer Federation of California: "This is a company that made five billion dollars in profit last year. And their profits are going up and up each quarter. Enough is enough. Let's not let them blackmail Californians."

Though there's no evidence other insurance companies will follow Allstate's move, homeowner Robert Yamamoto worries they might. He lives near a weak levee and wants to have choices to keep costs down.

Robert Yamamoto Flood Zone Homeowner: "If it's a smaller pool of companies that will issue it, potentially the prices will go up for homeowners insurance."

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