Allstate Outlines ‘Surgical’ Auto Rate Hikes to Combat Inflation

Rate increases in Allstate’s auto insurance business are in integral part of the insurer’s overall plan to address the impact of inflation.

Wednesday during a conference call with analysts to discuss first-quarter earnings, CEO Tom Wilson said Allstate’s strategy dubbed “Transformative Growth” begins with “aggressively raising prices” for auto insurance.

“We’re doing this surgically and raising prices more for new or shorter-tenured customers with less profitability, and less for longer-tenured profitable customers,” Wilson said. Last month, Allstate said it increased the magnitude of auto-rate increases expected for 2022.

Later during the earnings call, Wilson said blanket increases to cover higher loss costs due to inflation would affect a 10-year, profitable customer and a newer customer the same way – running the risk of losing a loyal policyholder. Therefore, he said, Allstate has “put less rate into our, what we call, older closed books and more into our newer books with shorter-term customers.” This will benefit retention results, Wilson said, which “is going to be a challenge for all companies” as auto insurance rates rise across the market.

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Glenn Shapiro, president of Property-Liability, said the first quarter tends to be a time for customers to shop. He said Allstate marketing for auto insurance remained selective “to grow some business where the economics were good.”

“We did that with a lot of precision,” Shapiro said of marketing. “We’re not just [going to] have the open sign everywhere. We’re marketing precisely to where we know we have a lifetime value return based on risk type. It’s a combination of underwriting, marketing, and pricing that all comes together.”

Shapiro said physical-damage claims severity is up across the country, especially in states like Texas, Florida, Georgia, New York, and California. Compounding matters, Allstate has a “higher distribution of total-loss claims involving newer vehicles compared to the industry,” Shapiro said. Bodily-injury claims severity also continues to rise though not as widespread as physical-damage severity. Still, Shapiro said “higher-speed accidents and less congested roads are leading to harder-impact crashes and more severe injuries, and an evolving legal environment is also a factor in casualty costs.” He said attorney advertising has doubled over the last decade to more than $1 billion annually.

Allstate implemented auto rates increases of an average of 9.3% in 28 states during the first quarter, Shapiro reported. With 95% of premiums coming from 6-month policies, the rate should begin to have an impact on margins although there is a lag before they are earned, he explained.

Topics Auto Pricing Trends