Allstate losing money on car insurance even after rate hikes
In the second quarter, Allstate paid out nearly $1.08 to cover claims and expenses in its auto business for every dollar of premium it collected. Not including the effects of claims payments due to costly wind and hail storms, mainly in the Midwest, the auto business still was in the red to the tune of $1.02 for every dollar collected.
Allstate reports second-quarter earnings in early August. Based on auto premium levels in the recent past, the underwriting loss is likely to be in the neighborhood of $500 million.
The company said late yesterday that it has hiked rates an average of 8.3% in all 50 states plus another unidentified territory since the beginning of the year. That included a 12% increase in Illinois earlier this year. Northbrook-based Allstate is the second-largest auto insurer in its home state.
Allstate and other major auto insurers are scrambling to respond to higher costs to settle claims, thanks mainly to the rise in used-car prices. The cost of total auto losses is pegged to the cost of replacing a vehicle.
The rate hikes are expected to continue. “Allstate continues to implement significant insurance rate increases given ongoing inflationary impacts on claim severities,” it said in the Securities & Exchange Commission filing.
The price increases are spurring pushback from regulators in some states. In Illinois, the Department of Insurance required auto insurers to disclose how much they made or lost insuring cars from 2019 to 2021.
The data, made public, showed that Allstate and several other major insurers made profits of about 15% while drivers hunkered down in their homes in 2020 and early 2021. Ordinary profits are in the single digits—often the low single digits.
Allstate appears to have spent much of that bounty buying back stock. Last year, it spent $3.3 billion on share repurchases—the most laid out for that purpose since 2007. When this year’s rate hikes are in full effect, Allstate expects them to generate $2.2 billion, according to the filing.