Allstate has greased regulatory path for $700m in Q4 auto tariff demands, with more filings in pipeline

US property insurer  Allstate can push the $700 million it announced in auto rate increases during the fourth quarter through the US regulatory machine with little by way of friction,  Allstate CEO Tom Wilson believes.

“We think we are going to get it from the regulators,” Wilson told analysts and investors during a conference hosted by Bank of America Securities. And the tariff motions will keep coming.

Wilson brags of a “good relationship” across the US regulatory crowd thanks to a “transparent” approach that puts the big data out front and center for regulators to review.  Allstate can secure approval on running data of cash paid on claims with a 90-day turnaround, rather than waiting until full-year profit and loss statements are in hand, he noted.

“And if you’re low cost, the regulators want to help you win.”

Part of the regulatory understanding should be a simple matter of give and take, Wilson argues. Allstate was quick to hand cash back to clients when pandemic lockdown orders drove down claims frequency. For all the talk of $700 million in Q4 tariff demands, the total 2021 take, net of rebates and refunds in Q1, will be only $190.

“You build up credibility with the regulator when you are proactive and do things in the customer’s best interest,” Wilson said.

Allstate is now suffering under the weight of claims inflation, highlighted by a 45% year on year increase in the Mannheim wholesale used car price index in January. The run up in replacement and parts prices has pushed Aslstate’s combined ratio in automotive to 102.3% by Q3 2021, then 104.3% in Q4, all well above a longer-term average in the mid-90’s.

“We are confident that we are going to get back to the level we have always operated at,” Wilson said of his company’s price ambitions.

Tariff increases, enacted in Q4 and awaiting regulatory approval or still pending in 2022, can't put Allstate back at its target combined ratio quickly. Allstate works with 6M policy terms, then waits another 6M to have the increase in policy rate fully worked into the net earned premium line.

The current Allstate rule of thumb:  written premium growth in excess of loss cost by 1% takes 0.4 percentage points from the combined ratio in year one, 0.5 points the year after.

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