Allstate must accelerate auto rate hikes in H2 to reclaim margin target

US retail P&C insurer  Allstate is increasing its rate hike demands for US automotive coverage in the second half of 2022 as it continues to play catch-up with runaway claims cost trend, CEO Tom Wilson told an equity market conference.

“We expect loss cost to continue to increase,” Wilson said during the Barclays Global Financial Services Conference. “That requires a further increase in auto insurance rates, so we are pursuing larger rate increases in the second half of 2022 than we did in the first half.”

Rate action taken to date should ultimately yield $1.7 billion in additional annual premium once fully enacted on all affected accounts and earned in (Allstate works on 6M contract periods).  New rate taken in H2 2022 will ultimately pack a larger punch.

That $1.7 billion sum should yank circa 6 percentage points off of Allstate’s combined ratio in automotive, which had spiked to 105% in the first half of the galloping claims inflation traceable to late 2021.

And while Allstate counts on 2.5 points of relief on its automotive combined ratio as recent upward reserve adjustments offered a one-off hit to prior period reserve impact, the path to the mid-90’s target will still require rates to move to outpace future loss cost trend, the CEO indicated.

To date, Allstate brands have hiked auto rates by 7.1% in 2022 through July or 10.0% since the start of Q4 2021, Wilson noted.

Allstate admits to jurisdictions where “we cannot get the rate increases” and stricter new business underwriting requirements will have to suffice. Wilson quickly called out California as the prime example.

When Allstate can take the full benefit of earned-in adjusted premiums plus the additional rate needed to get to the mid-90’s is now Wilson’s “hundred dollar question.”

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