The upending of the industry—first by COVID, which temporarily provided a windfall, and now by inflation, which has all car insurers scrambling to hike rates to restore profitability—has led at least temporarily to some strange outcomes.
Allstate appears to be navigating this churn better than its main publicly traded rivals, which for years have been viewed on Wall Street as the gold standard in the business.
As of March 31, Allstate’s auto policies increased 2.4% from the year before. That growth occurred even as the Northbrook-based insurer hiked auto rates by 9.3% on average in 28 states during the first quarter. In Illinois, the increase was 12% on average.
Meanwhile, Progressive, based in suburban Cleveland, eked out a 1% gain in auto policies. For Progressive, that was a monumental change. Last year, Progressive’s growth in auto policies was 6%—and that was a disappointingly low level for a company used to faster growth.
Chevy Chase, Md.-based Geico reported that auto policies were “relatively unchanged” from a year earlier in the first quarter, according to a Securities & Exchange Commission filing by parent Berkshire Hathaway. Such a report two years ago would have been met with shock.
The flip side of Allstate’s rare growth success is that its profitability lagged Progressive’s in the first quarter. Allstate has long generated the fattest margins in the auto insurance business, its primary calling card on Wall Street.
With the intensity of today’s inflationary environment catching the industry by surprise, all the major insurers have struggled with underwriting profitability since the middle of last year.
Allstate was unprofitable in the first quarter on an underwriting basis in auto insurance, with $1.02 in costs and claims payments for every dollar of premium collected. Progressive in the first quarter was far more profitable, paying 95 cents in claims and costs for every dollar collected.
In most quarters, those figures would be reversed.
Allstate’s stock was down 1.7% in afternoon trading, a decent showing given the bloodbath on Wall Street today. Progressive’s was down more than 3%.
For the year, Allstate has posted a gain topping 11% while Progressive’s stock price has increased a little over 9%. Progressive’s stock remains far more richly valued as a multiple of its book value than Allstate, however.
Whether the trends continue along this unlikely route likely will depend on whether Progressive continues to hike rates as aggressively as Allstate, which traditionally has been the first among the industry’s big four to respond to margin pressures with higher prices. Allstate will continue to increase prices the remainder of this year, executives have made clear.
Indeed, Progressive and Geico’s sudden growth challenges could be in large part due to the fact for years they’ve advertised themselves as cheaper alternatives to old-school, agent-sold incumbents like Allstate. With rates spiking at the “low-cost” insurers, their customers could be quicker to hunt for alternatives.
“In this new space, retention is going to be an issue for all companies,” Allstate CEO Tom Wilson said today on a conference call with analysts.
Glenn Shapiro, Allstate’s president of personal insurance, added that Allstate’s advertising was more aggressive early this year than Geico and Progressive, which typically blanket the airwaves.
“We did that because the marketing cost itself was down with others leaving that area,” he said. “There were a lot of shoppers, and first quarter tends to be a time (when) a lot of people shop.”
Allstate added 14% more auto policies in the first quarter than the same time last year. Most of that new business was generated directly over the internet or the phone, or through independent agents who buy policies from Allstate’s National General unit. Allstate agents made up 36% of the new policies.
The company needed every bit of that new business just to eke out the 2.4% gain in overall policies.