Allstate is cutting auto insurance rates in numerous large states, including Illinois, joining State Farm and other big rivals in responding to the pandemic with lower prices.
The Northbrook-based insurance giant last year resisted following the rate-cutting crowd. But Tom Wilson has chosen 2021 as the year in which Allstate for the first time in his 14-year tenure as CEO will begin capturing market share in the fiercely competitive auto insurance business.
Allstate will reduce auto rates in its home state of Illinois by 5 percent on average, beginning Feb. 18, according to filings with the Illinois Department of Insurance. Other states where Allstate is instituting 5 percent rate cuts include Wisconsin and Pennsylvania, according to filings in those states.
In Georgia, most drivers insured by Allstate will see an 8 percent reduction. The rest will get 5 percent, according to a filing.
In its filings, Allstate said driving levels have rebounded since the early stages of the pandemic last spring. But miles driven still are 10 to 15 percent below where they were before COVID. That's led to higher profits for Allstate and other car insurers, which are paying less in claims than they would under normal conditions. To date, Allstate has been more cautious than rivals on whether today's driving habits represent a new normal.
"Consumers have moved shopping to online platforms," Allstate said in its Illinois filing. "Individuals continue to opt for less leisure travel. School districts are utilizing entirely virtual or a hybrid of virtual and in-person learning. Commuting is reduced due to both unemployment as well as remote working. We expect these conditions to persist during the pandemic. Once the pandemic recedes, we expect these conditions to abate although it is possible the pandemic has led to some long-term changes in behavior."
A spokesman didn't respond to a request for comment.
Allstate's three primary competitors—Bloomington-based State Farm, Mayfield Village, Ohio-based Progressive and Chevy Chase, Md.-based Geico—all are reducing rates, too, to one level or another. For the industry, this has the makings of the first full-fledged price war in two decades.
That battle ended badly for both State Farm and Allstate. Allstate responded by repeatedly raising prices, harming its price competitiveness. Executives vowed at the time they would never repeat that mistake.
"I think competition in general has notched up higher," says Paul Newsome, analyst with Piper Sandler in Chicago. So far, though, he says he doesn't foresee insurers sacrificing profits excessively.
Wilson has reassured investors that these rate cuts won't come at the expense of profitability. He laid off nearly 4,000, or 8 percent of Allstate's workforce, late last year to ensure this year's cuts don't eat into profits. Allstate wouldn't say how much in annual cost savings the job cuts would provide.
A key question is whether a 5 percent cut will be deep enough to enable Allstate to win new customers from competitors, or simply is meant to stave off customer defections.
With an expensive army of agents on which Allstate and State Farm have relied in the past, the two often aren't able to compete on price with Geico and Progressive, whose greater online sales make for lower costs.
State Farm is the largest U.S. auto insurer, but is on course to be overtaken in the next few years by Geico. State Farm chopped its rates by double digits nationwide beginning last summer in large part to fend off that challenge. It's too soon to assess the results of that.
But Georgia—the state where Allstate just moved to cut rates more deeply than any other so far—could be instructive as to the limitations of price-cutting. State Farm filed in June for a 12.5 percent rate reduction in Georgia. By early November, when State Farm filed for changes to the rate structure that didn't affect total premiums collected, the company's auto policies in the state had fallen 4 percent in just those five months.
Responds a State Farm spokeswoman in an email, "Since implementing auto rate cuts in Georgia, State Farm has grown policies in that state. The Georgia auto rate cut went into effect at the end of August, and it would be more accurate to look at State Farm data from that time frame for your story."
That suggests policies plummeted from June to the end of August and then recovered some after that. State Farm didn't say how much policies have increased since late August.
It will take many more months to determine how much COVID and the change in American driving habits are upending the car insurance business. It seems clear, though, that the pandemic is one of those pivotal moments for the industry. More Americans are questioning what they're paying for when they're not driving as much. More may be open to pay-by-mile approaches that before they wouldn't have considered.
Geico, the second largest U.S. auto insurer, is offering pay-by-the-mile insurance in a growing number of states, including Illinois, emulating Progressive and Allstate, which have a substantial head start.
Illinois has emerged as one of the more hotly contested states in the price contest. Geico established a new business unit in Illinois last summer to serve as its primary vehicle for winning customers from competitors. Next month, that unit will cut rates on average by more than 4 percent for existing customers, just a half year after its creation. Already, as of December, it had amassed nearly 21,000 policies, according to a filing with the Illinois Department of Insurance.
Compare that with Allstate from July 2019 until January 2021. Its three main business units insuring Illinois drivers added a little over 6,000 policies in those nearly 18 months, according to filings.
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