Allstate Profit Weakens as Accidents, Claim Costs Increase

Allstate Corp. reported a 61 percent drop in its closely watched adjusted net income compared to the previous year, as the auto-insurance industry in the United States grapples with rising accident volumes and sharply higher claims costs.

Source: WSJ | Published on May 5, 2022

Allstate catastrophe losses

Allstate’s first-quarter adjusted income fell to $726 million from $1.87 billion a year earlier, primarily because of the company’s worsened car-insurance underwriting results.

Allstate, a top-five auto insurer in the United States by market share, said it is continuing to take steps to address the impact of rising costs. As inflation has accelerated to its fastest rate since 1982, the industry has been among the hardest hit.

Allstate, on the other hand, enjoyed strong profitability in the year-ago quarter as a result of Americans working from home rather than commuting. Rush-hour fender-benders, a major source of claims, were far below prepandemic levels.

Now, a growing number of people are commuting again, and many Americans are taking vacations on interstate highways.

According to Allstate, inflation has increased the cost of car repairs, replacement vehicles, and rental cars, while the frequency of auto accidents has increased.

"I think I'd compare inflation to a pig going through a python: it doesn't move very fast," Allstate Chief Executive Tom Wilson said in an interview. "We believe inflation will be with us for a while, so we've been raising prices aggressively while also reducing our expenses."

Industrywide, claims costs have risen as a result of more severe damage in many wrecks, which has resulted from higher average driving speeds, distracted driving, and an increase in driving under the influence of alcohol and drugs, according to a report released this week by Moody's Investors Service.

Many car insurers are attempting to pass on the higher costs to their customers. According to industry executives and analysts, they are raising premiums by 6% to 8%, with some requesting double-digit increases.

Mr. Wilson of Allstate said that the company's car-insurance premium rate increases have averaged 6.5 percent nationwide over the last six months, though they vary greatly due to different state-insurance regulations. Homeowners are paying 14% more on average than the previous year, owing primarily to higher insured values, he claims.

With those increases starting to go into effect, Allstate said its property-liability earned premium, a common industry measurement of revenue, rose 6.1% to $10.5 billion in the first quarter, including car and home-insurance policies. Nonetheless, underwriting income for auto and home insurance fell 83 percent to $280 million, from $1.66 billion.

Mr. Wilson stated that Allstate has altered its investment strategy in response to rising interest rates. It began shifting more into shorter-duration bonds last year in order to suffer fewer losses as interest rates rise and to earn higher yields more quickly.

Allstate's catastrophe costs were $462 million, down from $590 million the previous year. The first quarter of last year included frigid February weather in Texas and other states, which caused frozen pipes to burst, resulting in extensive water damage.

Allstate reported higher net income. Allstate turned a $630 million profit after a $1.41 billion loss the previous year. The loss was caused by the sale of certain life-insurance businesses.