By Lyle Adriano, INSURANCE BUSINESS MAGAZINE
February 3, 2022
Allstate Insurance’s results for Q4 2021 marked the second straight quarter that the insurer missed estimates – as record inflation drives up the costs of both insuring and repairing vehicles.
Auto repair costs have climbed so high that Allstate’s expenses in Q4 2021 jumped 43% from a year earlier to over $11.6 billion. The company’s P&C combined ratio rose 14.9 percentage points to 98.9%, which meant Allstate spent 98.9 cents for every dollar of premium taken in.
The combined ratio for Allstate’s auto business clocked in at a staggering 104.3%. By comparison, the combined ratio for its homeowners' policies was 87.1%.
“Basically in auto insurance, all the costs went up,” Allstate CEO Tom Wilson told Bloomberg in an interview, additionally noting that the frequency and severity of auto accidents increased in the second half of 2021.
It was also highlighted by the chief executive that used car prices, labor costs, and legal costs related to protecting customers involved in lawsuits have also similarly surged in the same period.
Wilson said that Allstate’s auto business is looking to control the rising costs by making deals with parts suppliers and working more closely with body shops. The chief executive added that the company will continue to trim expenses and hike prices to adapt to the rising costs, though he also admitted that those measures will take some time before any meaningful changes can be felt.
“We sell six-month policies. And so if I raise your price by 5% today, and you bought a policy yesterday, you don’t get that 5% increase for six months,” he said.
News of Allstate’s disappointing performance comes as the insurer faces scrutiny over allegations that it “systematically overcharged” its customers to the tune of about $1 billion in California. The California Department of Insurance (CDI) and Consumer Watchdog both filed documents with a state administrative law judge accusing Allstate of “price optimization” – the practice of charging higher premiums to customers that are unlikely to change to a competitor.