If Allstate Corp.’s customers “quit getting sued every time they have an accident” the company could ease back on some rate increases, according to Chairman, Chief Executive Officer and President Tom Wilson.
Medical treatments, medical consumption, inflation and higher legal costs on increased attorney involvement are all pushing claims severity higher and ultimately increasing rates, Property-Liability President Mario Rizzo added during the multiline insurer’s first-quarter earnings conference call.
Personal automobile physical damage claims are also still rising on higher parts and labor costs, but the rate of increase is moderating on factors such as lower used car prices, said Rizzo.
Auto claims frequency was down in the quarter, helped by favorable weather, but it was more than offset by higher claims severity, he said.
Allstate fully reopened to personal auto business in California in February, feeling comfortable with business there after a rate hike was approved. Regulators in New York and New Jersey also approved rate hikes, but it’s not enough to lift underwriting restrictions, said Rizzo.
In New York, he said Allstate is in discussions with regulators. In New Jersey, a second rate hike, for 13.95%, was approved to take effect in the second half of the year but still more is needed, said Rizzo.
Wilson said the company will continue to raise rates in additional geographies due to higher severity. Allstate has worked the past several years to reduce expenses and will keep doing so to remain competitive, he said.
“It’s difficult to determine where one’s competitive position is, given how rapidly rates are moving,” across the industry, he said.
State Farm increased its market share in recent years but has run “very large underwriting losses,” said Wilson. “That won’t be us.”
Allstate seeks growth by significantly increasing advertising, unwinding underwriting restrictions in states accounting for about 75% of its auto brand premium and expanding new products across channels, according to Rizzo.
While Allstate brand auto policies in force declined 5.2% from the prior-year quarter, National General auto policies in force rose 12.6% as its nonstandard business grew and the company continued to roll out a new middle-market standard and preferred product called Custom360.
The company can adjust pricing more quickly in its nonstandard auto business, Rizzo pointed out, because of high turnover in the line.
A new connected auto product is available direct in nine states and is being expanded to the agent channel this year, with more states and an expansion to homeowners planned in coming years, Rizzo said.
Allstate brand auto net written premiums rose 8.4% from the prior-year quarter on a 13.4% increase in average gross written premium on rate increases, partially offset by the decrease in policies in force.
Allstate brand new auto business was up 7% from a year earlier, Rizzo said, on a combination of advertising, direct sales and more productivity by Allstate agents.
Allstate Corp. applicable net income soared in the first quarter to $1.19 billion, rebounding from a $346 million net loss a year earlier.
Allstate brand homeowners implemented average 11.7% rate increases in 15 locations in the quarter. National General implemented homeowners rate increases averaged 14% across 12 locations.
The carrier sees additional growth opportunities in the independent agent channel in homeowners, said Rizzo.
Allstate is pursuing the sale of its health and benefits businesses rather than invest in more complementary distribution, a broader set of products and capabilities such as management of a health network, Wilson said earlier. The businesses generate about $240 million of adjusted net income annually.
The potential sale is progressing as expected, with “robust interest from a large group of quality potential buyers, both strategic and financial,” Chief Financial Officer Jess Merten said during the first-quarter earnings call.
“Diligence on a large, complex business takes some time, so does selecting the right potential buyers to stay involved in the process,” he said.
“We believe this is a great business” but someone else can do more with it, said Wilson, adding Allstate anticipates selling the health and benefits business in 2024.
While the divestiture will free up additional capital, Wilson continued to stress that Allstate is already “very well capitalized.”