Allstate Corp., the largest publicly traded U.S. home and auto insurer, halted sales of its Your Choice Auto product in California after a consumer group said drivers were cheated.

Allstate will no longer issue new Your Choice Auto policies in the state and will phase out the coverage by November, according to a statement yesterday from the Consumer Watchdog group. Northbrook, Illinois-based Allstate agreed to the wind- down under a deal with the group and the state regulator.

“It is clearly a negative for Allstate,” Paul Newsome, an analyst with Sandler O’Neill & Partners LP in Chicago, said in an e-mail. “The company has been struggling to build its policy count for some time and this will not help.”

Allstate Chief Executive Officer Thomas Wilson touted the insurer’s Your Choice products to investors as a way to limit price competition as the U.S. market for property-casualty coverage contracted. The program costs consumers more while cutting deductibles the longer a driver goes without a claim. It also allows a policyholder to report an accident without it affecting rates.

“Your Choice Auto became a cash cow for Allstate by charging customers more than they should be paying under California’s good driver law,” said Todd M. Foreman, in-house counsel for Consumer Watchdog. “Allstate was receiving $20 million a year in extra premiums since it began selling the program in California in 2008.”

Earnings Impact

Newsome, who has a “hold” rating on Allstate stock, said pulling the Your Choice Auto product from the most populous U.S. state probably won’t have “a significant effect” on earnings in coming quarters. Allstate will continue to sell Your Choice Auto in other states, Consumer Watchdog said.

Allstate fell 30 cents, or 1 percent, to $30.99 yesterday in New York Stock Exchange composite trading. Consumer Watchdog released its statement after the close of regular trading.

Your Choice was created by Allstate after considering “what would the consumer want and what would they be willing to pay for?” Wilson told investors in a conference call in February. The insurer had been introducing new offerings “so we don’t compete just on price,” he said.

“Transitioning away from YCA and putting this debate behind us puts us in a stronger position to introduce even better, stronger pricing and products for California consumers,” said Bill Mellander, a spokesman for Allstate, in Sacramento. The company has about 100,000 YCA policies in force in the state, Mellander said.

“The matter is closed from our perspective,” said Ioannis Kazanis, a California Department of Insurance spokesman. “It comes down to being a business decision on Allstate’s side.”

To contact the reporter on this story: Andrew Frye in New York at [email protected]

To contact the editor responsible for this story: Dan Kraut at [email protected]