Allstate’s dramatic auto rate hikes have regulators seeing
In Allstate’s case, such legislation has the potential to delay its return to profitability in the auto business—first on the list of Wall Street’s Allstate worries. The company badly lags archrival Progressive, which already is back in the black insuring cars following an unprofitable period. Progressive’s 16% stock price rise this year far outpaces Allstate’s 7% increase.
California, the largest auto insurance market in the US with 12% of premiums, hasn’t approved any auto rate hikes since the start of the pandemic. California Insurance Commissioner Ricardo Lara in October 2021 publicly pointed a finger at Allstate as one of three insurers—including Mercury Insurance and CSAA—in the state that didn’t rebate enough to policyholders during the pandemic period, when driving and insurance claims plunged.
“New data shows these three insurance companies have the largest gap between what they did and what they should have done to provide further premium relief for their policyholders,” he said back then. “On behalf of consumers, I am out of patience.”
Allstate didn’t respond to Lara’s demands. He’s now sitting on a request for a 6.9% rate hike, Allstate CEO Tom Wilson told an investor conference Sept. 13. In response, Allstate is discouraging new business in California.
“That’s 12% of our premiums in the auto business,” Wilson said. “But we’re completely comfortable with (not growing) in California. . . .We can’t give our money away there.”
Northbrook-based Allstate, the fourth-largest US auto insurer, is losing money insuring drivers. With auto traffic back to pre-pandemic levels, and inflation boosting prices for used cars and auto parts, the company is scrambling to stem the losses by raising rates at unprecedented levels.
An Allstate spokesman didn’t respond to a request for comment, but Wilson told investors: “We expect loss costs to continue to increase from here, which requires us to further increase auto insurance rates, and we’re pursuing larger rate increases in the second half of 2022 than we did in the first half.”
The industry’s trade groups are girding for battle in state legislatures next year.
“When the cost pressures are what they are and the pressures on rates are what they are, it is not surprising that there would be increased policymaker attention on the issue,” says Bob Passmore, vice president of personal lines at the American Property Casualty Insurance Association .
The fact is, Passmore says, that inflation necessitates the rate hikes.
“I guess (critics) are hanging their hat on the very short period of time and a set of conditions that were completely unique that hasn’t existed for over two years now,” he says. “We have people on the roads, we have people getting in accidents. And we have an escalating cost environment.”
California aside, regulators in most states acknowledge a need for increases. But Allstate’s price hikes often dwarfed those of other major players—Bloomington-based State Farm; Chevy Chase, Md.-based Geico; and Progressive, based in the Cleveland suburbs.
In Illinois, for example, Allstate in August raised rates by 16% on average for most drivers, just six months after imposing a 12% average increase. Together, the two price hikes add more than $500 annually to the average premium, according to filings with the state’s Insurance Department.
“I hope more regulators recognize that Allstate didn’t file major rate cuts when their loss costs were way down over the past couple of years,” says Douglas Heller, insurance director for the Consumer Federation of America. “Instead, the company increased shareholder dividends and funded a massive stock buyback, acquired a couple of smaller insurers and lined the pockets of executives. But the moment their losses start rising, they immediately file for huge rate hikes. Regulators ought to be stepping in and saying that you can’t have it both ways.”
In response, Passmore said, “If (Allstate) overplays their hand, if they raise their rates too much, their competitors are going to punish them by taking their business. We’ve seen that happen in the past.”
In Georgia, King is formulating a proposal to put before the Legislature, a spokesman says. Closing a loophole in the commission’s authority to block rate hikes, he says, “will be one of our top priorities.”
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