Additional Auto Rate Increases on the Horizon: Allstate and Others Follow Suit

Wait until next year to see how much auto insurance will cost.

Allstate, based in Northbrook, has seen its first quarter sales increase for the seventh consecutive time. This was despite a rate increase of over 20% nationwide since the 4th quarter of 2021.

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On their quarterly earnings call, CEO Tom Wilson and his colleagues told analysts that they do not know when their prices will catch up with the inflationary spiral in their businesses. They have just promised to keep raising rates until inflation catches up.

Wilson stated that the Allstate brand had grown by almost 17% last year. We don’t know what the target will be for this year. It will be what it is needed to be.

Allstate’s home-state has seen a much steeper increase than the national average. Allstate rates in Illinois for auto policies increased by 28% over the past year. Another increase was implemented earlier this year.

Allstate is not alone. Progressive, one of Allstate’s biggest competitors, is resuming auto rate increases this year, after pausing them in mid-2022.

Progressive, an auto insurance company based in suburban Cleveland in Ohio, has gained market share over the last year from Allstate, and other large auto insurers, including during the first quarter. In the first quarter, Progressive added 1.4m auto policies, which equates to an increase of one percentage point in national market shares.

In 2022, Progressive will surpass Chevy Chase, Md. based Geico to become the second largest auto insurer in the United States. Allstate is No. 4 player.

Tricia Griffith, Progressive’s CEO, had a similar message for investors to Wilson. She said on Progressive’s analysts call yesterday, “We will take as much as rate we need to reach our target profit margin.”

State Farm of Bloomington, the nation’s biggest auto insurer, has been rapidly increasing prices since it suffered its worst loss ever in company history. State Farm has increased its average price by 12.5% in Illinois this year.

Griffith stated that it is not surprising that consumers are buying more car insurance.

Wilson, Allstate’s CEO, said that the company expects policies to decline as it continues to work to restore profitability. Both Progressive and Allstate have reduced their advertising budgets by a significant amount. Wilson stated that Allstate will be more selective in the types of customers it seeks to attract.

The drivers are not going to be happy with the rising insurance rates and persistently high gasoline prices.

Wilson responded to a question about inflation during the quarterly call by saying, “If you look at the overall inflation numbers — those that the Fed and everyone else see — this is one set of figures.” If you look at what we do and the inflation, it is dramatically higher.

He added that “whether the Fed tightens or does not tighten the economic situation, it probably won’t do much to prevent people from getting into serious accidents, injuring themselves, and needing medical attention, which then leads to more lawyers being involved in cases.” “It will not have an impact on the prices that (equipment providers) charge for their parts.”

Allstate predicts that the loss-cost inflation rate will be 10% this year. Last year, it was 16%.

Wall Street received the news with calm. Allstate’s stock rose 1.8% during early afternoon trading, despite a negative stock market day.

The question that hangs over Allstate, and to a lesser or greater extent, its competitors, is when premiums collected will be enough to cover policyholders, and to make a profit. No one can give a definitive answer.

Wilson described Allstate’s opening quarter with a tennis analogy: “We kept serve.”

Allstate’s other major question — whether it is enough to continue repurchasing shares — was pushed aside. The company spent $153 million on 1.2 million shares in the first quarter, or 0.5% of outstanding shares.

Allstate purchased 6.4 million shares or 2.3%, of its outstanding shares during the same period of last year. The cost was $794 million.

Wilson stated earlier this year that the remaining $649 million of the existing $5 billion buyback authority would be completed by the third quarter. Allstate would need to spend more than twice what they did in the first quarter to achieve this.

The share buybacks were crucial to preventing Allstate’s stock from falling more than it already has. This is because its earnings have not kept up with the much faster-growing competitors like Progressive. Investors have been focusing on Allstate’s capital. It must have a large capital cushion in order to satisfy regulators that it can meet its liabilities. These fluctuate depending on the severity of hurricanes and wildfires.

Allstate is currently rated negatively by all three major credit rating agencies.

Allstate’s loss in the first quarter was largely due to bad weather. The catastrophe losses in the first quarter of this year were $1.7 billion, compared to just $462 millions during the same period last. About 70% of the costs were attributed to five major windstorms that occurred in March.

Allstate reported a net loss of $346 million or $1.31 per common share for the quarter. Allstate’s net income for the same quarter of last year was $634 million or $2.25 a share.

Allstate claims costs and expenses for its auto insurance business totaled to $1.04 per dollar collected in premiums. In the previous year, this figure was over $1.10 per dollar of premium. On a fundamental basis, without catastrophes or re-estimates for future claims, there was only a marginal improvement — from $1.04 to $1.03.

Allstate auto policies decreased 2.3% between the end of last year and March 31. The period ended with just over 21 millions. Allstate auto premiums increased 4%, to $6.8 Billion due to the higher rates.

Renewals of Allstate auto policies fell to 85.7%. This is one of the lowest figures ever recorded. The number had been 87.5% a year earlier.