AUSTIN - Allstate Insurance agreed Friday to pay the largest insurance refund in state history - $42.7 million - to resolve allegations that it overcharged 750,000 Texas drivers.

State Insurance Commissioner Elton Bomer signed an order Friday spelling out the terms of the refund, which will range as high as $100 per customer.

Rates also will be reduced an average 6 percent for Allstate customers under the order. Nearly 360,000 drivers in Dallas, Tarrant, Collin and Denton counties are insured by Allstate.

"I'm pleased that Allstate agreed to end this controversy by reducing its rates and refunding the amounts its policyholders were overcharged, " Mr. Bomer said. "This case should underline the need for companies to exercise great care in calculating the rates they charge consumers. I want the industry to understand clearly that the Texas Department of Insurance will be challenging rate filings that are not accurate or in compliance with the law."

The overcharges occurred primarily because Allstate tried to subsidize premiums for its high-cost drivers by charging its other policyholders more.

Allstate officials, who originally criticized the commissioner and Insurance Department for making the allegations, said the company decided to pay after negotiations with the state.

"Allstate believes this settlement is in the best interest of our customers, employees and shareholders," said Sharon Cooper, a spokeswoman for Allstate. "It is a clear example of why differences between insurance companies and regulators should be resolved with TDI [Texas Department of Insurance], and not through costly, unnecessary litigation."

There had been threats of a possible class-action case against All-state regarding the overcharges, but department officials said they knew of none that had been filed.

In agreeing to the consent order, Allstate denied any violations of Texas insurance laws.

Ms. Cooper said former policyholders will receive checks ranging from $5 to $100, and current policyholders will receive a credit on their auto insurance premiums. Those transactions will begin in about 60 days.

The refunds affect Allstate customers who purchased an auto insurance policy between June 30, 1995, and Sept. 8, 1997.

All three of the company's subsidiaries are affected by the action: Allstate Insurance Co., Allstate Property and Casualty Co. and Allstate Indemnity Co.

Allstate did not immediately calculate the savings from what it said would be an average 6 percent rate cut for all current policyholders, as called for in the order.

Insurance regulators had accused Allstate, the third-largest property insurer in Texas, of including improper expenses in its auto rates. The complaints against the company were raised after a state review of Allstate rates filed in 1995 and 1996.

The department said Allstate illegally billed regular policy-holders to subsidize the high-risk driver policies that Allstate is required to sell under a state insurance program for those drivers.

The department also said the company was charging "excessive" premiums because of other improper calculations in its rates. Among those:

* Allstate's rates were based on an improperly high profit margin of 17.1 percent. Mr. Bomer last year ruled that a reasonable profit margin for auto insurers is 11.5 percent to 12 percent.

* Allstate's rate filing failed to include as income interest collected from customers on installment plans and unrealized capital gains on investments. Failure to include that revenue artificially reduced Allstate's profits.

* The rate filing included a smaller reduction factor than required by the state for the effects of civil justice reforms in Texas. Insurers were ordered to cut their rates to reflect their savings from the reforms, which reduced the number of insurance lawsuits in state courts.

Public Insurance Counsel Rod Bordelon, who also signed the consent order, said it should fairly compensate policyholders who were overcharged, particularly those with good driving records.

"The shifting of costs for losses caused by high-risk drivers who are rated separately was both illegal and patently unfair to the policyholders who were picking up the tab," said Mr. Bordelon, who represents consumers in insurance matters.

The Insurance Department and Mr. Bordelon's office were scheduled to take their claims against Allstate to an administrative law judge in November. That hearing was canceled under the agreement.

Last fall, Allstate was one of two large insurers to settle a class- -action lawsuit that alleged improper billing by the two companies. The other was Farmers Insurance.