Allstate and Progressive, two of the nation’s biggest car insurers, say inflation continues to hurt their auto-insurance businesses, and are pushing ahead with additional premium-rate increases for vehicle owners.
The two giants, and many other big car insurers, say higher claims costs continue to dent their results, despite slowing inflation. Prices continue to rise for auto parts, they say, and vehicles are taking longer to be repaired than in past years due to shortages of workers. Those delays, in turn, lead to extended rental-car use by policyholders, at the insurers’ expense.
Allstate’s first-quarter results were also badly hurt by outsize catastrophe losses, including unusually severe storms across the country in March.
Allstate Chief Executive Tom Wilson acknowledged in an interview that there “was a huge increase in average price” over the past year for vehicle owners. But he said that costs rose strongly, “so we didn’t make as much progress on profit improvement” as intended.
Allstate said it raised rates by an average of 8.4% in 28 states in this year’s first three months, on top of increases averaging 11% in last year’s fourth quarter in 38 states, and 14% average increases in the third quarter in 19 states. Mr. Wilson said the company would continue to pursue rate increases “until we get back to historical profit margins.”
Progressive shares slipped 2.5% Wednesday, following the release of a quarterly shareholder letter in which the chief executive disclosed a reduction in advertising expenditures for the company, well known for its extensive marketing featuring “Flo,” a fictional salesperson.
Tricia Griffith, chief executive of Progressive, said the move, being accompanied by premium-rate increases, isn’t intended to bring growth “to a screeching halt.” Any impact would depend on how rivals also adjust their prices in the face of inflation.
Progressive intends “to be aggressive with raising rates,” and the increases would be on top of premium hikes of more than 13% in 2022 and an additional 4% in the first quarter, Ms. Griffith said in her letter.
The company needs rate increases “of around 10 more points this year to catch up and stay ahead of the trend” of the higher costs in claims for private-passenger vehicles, she told analysts in the call. Requested increases could range from 8% to 12%, she said.
Car insurers’ struggles with inflation come after a long stretch of outsize profits during the pandemic, as they benefited from Americans working from home rather than commuting. Back then, rush-hour fender-benders—a leading source of claims—were running well below prepandemic levels.
In earnings calls over the past couple of weeks, car-insurance executives have made clear “that driving and crashes are at or near pre-pandemic levels,” said William Wilt, president of Assured Research LLC, a research and advisory firm serving the property-casualty insurance industry.
Travelers Cos. said last month that it raised car-insurance rates by 14% on renewed policies in the first quarter. An executive said the company expects the figure “to be modestly higher than this level throughout the remainder of 2023.”
Mark Dwelle, an analyst with RBC Capital Markets, said in a report that Travelers has “miles to go to get back to actual ‘good’ results” in its car-insurance business, adding: “Less bad is a step in the right direction.”
Allstate swung to a first-quarter net loss of $346 million, down from $634 million in net profit in the year-earlier period. Catastrophe costs surged to $1.69 billion, from $462 million in the year-earlier period.
The company said that property-liability earned premiums, an industry measure of premium growth, increased by $1.1 billion, or nearly 11% from the year-earlier period, due to rate increases on auto and home insurance. The company also cut costs, but the auto-loss costs paired with the “exceptionally high” first-quarter catastrophe losses led to an underwriting loss of $1 billion. In the year-earlier quarter there was a $280 million gain.
Mr. Wilson said the catastrophe costs tallied up to the company’s worst first quarter for such claims in at least a decade, though such large costs have occurred over the years from summer and early-fall hurricanes.