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Allstate approved for double-digit rate increases in California, New York and New Jersey

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Announcements | Business Practices | Insurance
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Allstate announced Thursday double-digit rate increases for auto insurance in California, New York and New Jersey, following comments CEO and President Tom Wilson made last week that the company would drop insurance customers in those states, if rates weren’t increased.

California approved a 30% increase, New York a 14.66% increase and New Jersey a 20% increase, according to an Allstate press release. It states the rates will be implemented in December with effective dates through February.

The announcement comes just days after Wilson said, during a Goldman Sachs Financial Services Conference, that the company would exit those states if auto insurance rates weren’t increased.

“If we don’t get price increases this year, or approved this year, in those states, we’re going to move from just not taking on new businesses to having to say goodbye to existing customers,” Wilson said. “We don’t want to do that. I think the regulators would prefer we not do that. We are not threatening anybody. We are just saying we can’t afford to lose that much money in those three states.”

Wilson said Allstate needed to increase its price for auto insurance by 30% in California and New Jersey to make a profit in those states. New York needs an increase of 18%, he said.

“When you look forward next year, either we’ll be successful and get the kind of rate increase we need to get back into the margins that we want, or we’ll get smaller in those states,” Wilson said. “Either way, it should improve auto insurance profitability.”

Allstate saw a 9.8% increase in revenue in Q3 compared to Q3 2022, with $14.8 billion earned, Wilson said during Allstate’s November earnings call. He said the rising revenue comes from higher property-liability earned premiums in auto and homeowners’ insurance.

“Property-liability recorded an underwriting loss of $414 million, which compares to [a] $1.3 billion loss in the third quarter of 2022,” he said in the call. “While the improvement was encouraging, loss cost trends remain elevated and require continued execution of the Auto Insurance Profit Improvement Plan, particularly in California, New York and New Jersey.”

Allstate’s improvement plan for 2023 includes rate increases and expense reductions, such as, less advertising spending. It also includes restricting new business in locations where profit has been challenging, while adding new business in states that are profitable. A fourth part of the plan modifies the claims process and increases in-person inspections.

Last week, Wilson said the three states gave the company an underlying combined ratio of 119.6 in Q3 for auto insurance premiums. The ratio was 97.2 countrywide.

He said claims increased during the pandemic because of higher used car prices and repair costs.

Wilson said the cost to replace cars has since lowered, while the cost to cover bodily injury, car repair, and litigation remains above general inflation.

“Everybody wants to know what our lost costs are going to be next year,” Wilson said. “I don’t know what people are going to charge to fix cars. I don’t know what’s happening with used car prices.”

He said that Allstate will likely have to increase prices again next year. That will depend on the growth of costs.

“We have to go to the regulators,” Wilson said. “Some states are easier than others. Some you just file it and off you go. Others you have a long drawn out process to increase your prices.”

He said regulators often understand why Allstate needs a price increase because they see the company’s costs.

“You have companies and by law, you are required to let them make money and let them increase their prices,” Wilson said. “On the other hand, if you are a politician, it is not the most favorable thing to do for your career.”

Wilson said Allstate is in active conversations with California and that his team had been in touch with state officials the week prior.

“From our standpoint, it’s one of the highest priority things we have going before the end of the year,” Wilson said. “We are all over it and we will see how we do.”

California Insurance Commissioner Ricardo Lara approved 6.9% rate increases for Allstate, Mercury, and GEICO during late 2022 and early 2023, according to the LA Times. It is the highest increase companies can ask for without triggering a public hearing.

Consumer Watchdog asked Lara in late 2022 to deny Allstate’s request before the approval. It said the rate increase would affect more than 900,000 policyholders and generate an overall $165 million in additional premiums annually.

Wilson received $14.9 million in salary and incentives, including an $11 million bonus, in 2022. The income is lower than the $18.4 million he received in 2021.

The company said Wilson delivered “excellent operating leadership in a difficult external environment,” in its SEC April filing.

Allstate reported a $1.4 billion loss for 2022.


Featured image: An Allstate agency in Acme, Mich. (John Huetter/Repairer Driven News)

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