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Allstate moving from ‘modest reductions’ to ‘significant increases’ in auto rates: CEO Wilson

Aerial view of downtown Chicago

Personal lines giant Allstate is increasing rates for its auto insurance business in response to rising loss severity that has hit the segment, the firm’s CEO Tom Wilson said.

We are “moving from modest rate reductions to significant increases in auto insurance prices,” Wilson said during the third quarter earnings call with analysts.

The executive noted that while the overall level of accident frequency for Allstate is still below pre-pandemic levels, national nonstandard business nationally is back to the levels before the Covid-19 outbreak.

The carrier will increase its auto rates as a result of higher auto severity throughout 2021, which has been significantly impacted by current supply chain disruptions in the US economy.

The Illinois-headquartered insurer also included the rise in used car prices and original equipment parts as a driver in pushing auto insurance rates higher.

Wilson emphasized during the call that Allstate management will keep close track of auto and other segments’ margins, but would be willing to grow exposure.

“Top line is going to keep going up as long as we see movement in the bottom line,” the executive said, adding that it is still unclear when the company will get to its targeted margins in the auto business as it also depends on costs trends.

“But when we get back to the same underwriting margin on auto insurance [as before], you can't really predict until you can have a better handle on where frequency and severity is going to shake out,” Wilson added.

Allstate’s P&C business fell to a $534mn underwriting loss during Q3, with higher catastrophe losses and both claims frequency and severity weighing on the firm’s performance.

“Underwriting income declined primarily due to higher loss costs in settling auto insurance claims,” Wilson told analysts, adding that “we've implemented price increases to proactively respond to the sharp rise in loss cost.”

Allstate has expanded its auto business over the last months. Earlier this year, the company acquired Ohio-based SafeAuto Insurance Group for $270mn in cash as part of that growth strategy.

The deal boosted Allstate operations in at least 28 states across the US, as SafeAuto wrote around $335mn in direct written premiums in 2020

During the Q3 earnings call this morning, Wilson said that the carrier successfully completed the SafeAuto deal on October 1.

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