rate hikes


Allstate losing money on car insurance even after rate hikes

  • September 9, 2022

In the second quarter, Allstate paid out nearly $1.08 to cover claims and expenses in its auto business for every dollar of premium it collected. Not including the effects of claims payments due to costly wind and hail storms, mainly in the Midwest, the auto business still was in the red to the tune of $1.02 for every dollar collected.

Allstate reports second-quarter earnings in early August. Based on auto premium levels in the recent past, the underwriting loss is likely to be in the neighborhood of $500 million.

The company said late yesterday that it has hiked rates an average of 8.3% in all 50 states plus another unidentified territory since the beginning of the year. That included a 12% increase in Illinois earlier this year. Northbrook-based Allstate is the second-largest auto insurer in its home state.

Allstate and other major auto insurers are scrambling to respond to higher costs to settle claims, thanks mainly to the rise in used-car prices. The cost of total auto losses is pegged to the cost of Replacing a vehicle.

The rate hikes are expected to continue. “Allstate continues to implement significant insurance rate increases given ongoing inflationary impacts on claim severities,” it said in the Securities & Exchange Commission filing.

The price increases are spurring pushback from regulators in some states. In Illinois, the Department of Insurance required auto insurers to disclose how much they made or lost insuring cars from 2019 to 2021.

The data, made public, showed that Allstate and several other major insurers made profits of about 15% while drivers hunkered down in their homes in 2020 and early 2021. Ordinary profits are in the single digits—often the low single digits.

Allstate appears to have spent much of that bounty buying back stock. Last year, it

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Illinois drivers insured by Allstate to get 16% rate hike

  • September 1, 2022

This latest price move will add $315 annually to the average premium Illinois customers of Allstate are paying, according to a filing yesterday with the Illinois Department of Insurance. It takes effect Aug. 18, so existing customers will pay the higher prices whenever they renew their policies.

The two rate hikes combined will have Allstate auto customers here paying $520 more on average per year, or $43 monthly. Allstate is the second-largest auto insurer in Illinois, trailing only State Farm.

Northbrook-based Allstate isn’t the only major car insurer giving policyholders a rate shock. Geico, which for decades has advertised heavily how much customers can save by switching to it, recently notified drivers in Illinois of a 17% average rate hike.

Adding Geico’s two smaller recent price hikes, the Chevy Chase, Md.-based insurer is raising prices for most of its customers in Illinois by $470 annually on average.

Auto insurers to varying degrees are struggling to keep up with the pace of inflation in settling claims. Soaring used-car prices have significantly increased what it costs insurers to cover total losses.

Allstate warned investors earlier this month that second-quarter results will show substantial losses insuring cars. The company’s stock has fallen 20% since hitting a 52-week high April 20.

Still, Allstate’s rate hikes in Illinois have been steeper than elsewhere in the country. Through July 20, Allstate said, it had boosted auto rates by 8.3% on average nationwide. Illinois’ 12% increase in February well exceeded that. It remains to be seen whether drivers in other states will suffer increases near this 16% hike.

Allstate spokespeople didn’t respond to a request for comment.

Illinois has one of the most insurer-friendly regulatory regimes in the country. The state has virtually no authority over rates, and insurers merely have to file with the Department of

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Column: Illinois auto insurance regulation needs an overhaul

  • August 31, 2022

Insurers say they need to raise rates because traffic is up from 2020 lows and inflation has boosted the cost of auto repairs.

In some states, insurers’ rationale for rate hikes would undergo scrutiny from expert regulators with the power to block the increases. In Illinois, we take insurers’ word for it.

Now, there are good reasons to require that drivers buy auto insurance. But if the state forces us to purchase a product, it should also protect us against the price-gouging such a requirement invites.

Many other states provide that protection, to varying degrees. A 2019 study by the Consumer Federation found that 21 states require regulatory approval of some or all rate hikes. Another 19 at least require that insurers notify regulators before raising rates. Illinois is one of only nine states that require filing only after insurers have boosted prices.

The Consumer Federation study shows that stronger regulation reins in rate hikes over the long term. Between 1989 and 2015, the weighted average annual auto insurance expenditures in states requiring prior regulatory approval of rate changes rose 45%, compared with a 70% weighted average for “use and file” states like Illinois.

California, the state with the strictest prior approval regime, had the lowest average expenditure increase—just 12.5% ​​over a 26-year period that saw the national average climb 61.1%. In Illinois, the average expenditure rose 59%.

True, auto insurance premiums are higher in California than in many other states, including Illinois. Premiums reflect risk levels driven by factors such as density and traffic congestion. California has some of the highest traffic congestion in the country, leading to higher rates. But it’s also worth noting, as Heller points out, that California hasn’t allowed any auto insurance premium increases since the pandemic hit, and required more rebates

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