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Allstate looks to ‘mitigate repair costs’ through agreements, expects little pushback on auto insurance rate increases

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Announcements | Insurance
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As Allstate raises rates to cope with rising auto insurance costs, it will also be looking to “mitigate repair costs” through its partnerships with repair shops and parts suppliers, a company executive told investors during a Q4 earnings call.

The approach may signal that the claims settlement process is about to get even more challenging as Allstate seeks to reduce the number of dollars it spends on repairs.

“Beyond expense reductions and rate increases, we’re also leveraging advanced claim capabilities to mitigate loss cost pressure for our customers,” Glenn Shapiro, president, Personal Property-Liability, told investors on Feb. 3.

“We’re broadening strategic partnerships with part suppliers and repair facilities to mitigate repair costs. We’re using advanced claim analytics and predictive modeling tools to optimize repair versus total loss decisions and to assess the likelihood for injury and attorney representation on casualty claims,” Shapiro said.

“The bottom line is we are highly confident in our ability to restore auto profitability to targeted levels,” he said.

On the income side of the ledger, Allstate has announced to the industry that they’re increasing their rates as their costs rise, and that they see no reason why regulators at the state level would not approve their “justifiable and supportable” new rates.

Allstate raised auto insurance rates an average of 7% in 25 states in the last quarter of 2021, and will continue seeking higher rates, even in states that have already seen an increase, executives told investors.

Shapiro said that increases in auto severity “reflect inflationary pressure across coverages, with a number of underlying components of severity rising faster than core inflation.”

Allstate did not respond to a request from Repairer Driven News to outline how “broadening” their relations with the insurer might affect the repair shops and parts suppliers it works with, who are facing inflationary pressures of their own.

Auto Insurance Loss Costs Impacted by Inflationary Pressures

Auto repair costs have contributed to a 43% increase in Allstate’s expenses in Q4, to over $11.6 billion, the company said in a statement. Allstate’s P&C combined ratio for its auto insurance business rose to 104.3%, meaning that it spent $104.30 for every $100 it collected in premiums. By comparison, the combined ratio for its homeowners’ policies was 87.1%.

2021 was a year of “two distinct halves as it related to profitability of auto insurance,” Allstate CEO Tom Wilson said. While income for the first six months totaled more than $1.7 billion, thanks to lower accident frequency and offset increased claims severity, that changed in the third and fourth quarters.

“In the second half of the year, auto claim frequency continued to increase towards pre-pandemic levels and the cost of repairing cars and settling bodily injury claims accelerated,” Wilson said.

Shapiro said auto property damage frequency rose 21.5% in the fourth quarter of 2021 compared to 2020, but was down 13.3% compared to 2019.

Although miles driven are approaching pre-pandemic levels, he said, that’s been moderated by a “meaningful” change in time-of-day driving.

Shapiro said higher used car values and rising “OEM parts and labor rates” in 2021 have resulted in higher severities and coverages like collision and property damage.

Asked for a “sort of a state of the union on the regulatory front,” given inflationary pressures consumers are facing, Wilson said Allstate has been successful at making the case for rate increases and sees no reason why it should not continue to be.

“We are continuing to go at a very fast pace across other states and even in some cases, the same states, again, with rate increases as we get new data and new trends,” he said. “And to this point, we have – you’re always going to experience some discussions, some push on the data, some negotiation, if you will, and some back and forth.”

Rate increases are “less a political issue than it is a reality issue of looking at the numbers and what is the justifiable and supportable rate increase,” Wilson said. “We’ll have pushback in places, and we’ll have discussions and give and take. But overall, we’re getting the rates that we need, and we’re going to continue to do that.”

More information

Q4 2021 The Allstate Corporation Earnings Conference Call

Allstate raises auto insurance rates as claim severity increases, discusses value of telematics products

Allcorp – Q4 2021 Earnings Presentation – Final

Expert testifies Allstate overcharged some policyholders total of nearly $1B


Featured image: An Allstate Insurance office in Houston, Texas. (Brett_Hondo/iStock)

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