The COVID-fueled price competition among auto insurers took its toll on Allstate in 2020.
The Northbrook-based company, which prides itself on how well it holds onto customers once they join, posted the worst retention numbers in recent memory last year. For 2020, Allstate’s auto policy renewals for its namesake brand, which accounts for a majority of its revenue, were 87.5 percent, down from 88.0 percent in 2019. It was the worst performance on that metric since at least 2001, according to investor disclosures.
Not coincidentally, that led to a 0.5 percent decline in policies at yearend, to 21.8 million, according to earnings data released yesterday. By contrast, Mayfield Village, Ohio-based Progressive, consistently along with Geico the fastest-growing of the big U.S. auto insurers, boosted its auto policies by 11 percent in 2020, according to a Securities & Exchange Commission filing.
The slippage flew in the face of one of CEO Tom Wilson’s top priorities, which is for Allstate to add market share after years of losses to the likes of Geico and Progressive. He’s pursuing what he calls a “transformative growth” plan, in which the company intends to compete hard in sales over the Internet and phone, as well as through independent agents. Most of the company’s business continues to come through its army of agents selling only the Allstate brand.
In a conference call with analysts this morning, Wilson didn’t have many answers for the decline in policies. “Of course, retention’s always hard to figure out, right?” he said. “Because you have a bunch of stuff going on, you have people changing lifestyles, not driving as much, some people shopping more, you have competitive moves.”
Executives attributed at least some of the attrition to the end of Allstate’s “Shelter-in-Place Payback,” which expired last summer after Allstate provided monthly 15 percent rebates to drivers in the early stages of the pandemic. The company then reverted to its old rates in most states while arch-rival State Farm slashed auto rates by 11 percent nationally on average in response to far lower accident claims as driving behavior changed. Progressive and Geico, too, lowered prices in select states.
State Farm now is increasing rates again in many states, but not to the point where they were before COVID. Allstate early this year finally is trimming auto rates in several states, including a 5 percent average reduction in Illinois, going into effect later this month.
Allstate long has championed the importance of customer retention in driving growth or at least holding its own in market share. Allstate achieves its industry-leading profit margins by pricing policies above faster-growing rivals, given that its costs remain higher than many peers.
So it was unusual to hear Glenn Shapiro, Allstate’s president of personal property-liability, come close to dismissing the retention issue during the earnings call. “We're within a decent range of our long-term retention and we're focused on it, and of course we want to retain every customer that we worked hard to get in the first place,” he said.
Allstate’s renewal rate generally over the last eight years has been about a full percentage point above 2020. That doesn’t sound like a lot, but on a base of about 20 million policies, a 100 basis points means 200,000 more lost policies.
Allstate’s 78.2 percent renewal ratio in the fourth quarter was its worst quarterly attrition in at least eight years.
Wall Street isn’t loving what it's seeing, either. Allstate’s stock price was down $2.25, or 2.1 percent, in early afternoon trading. That was despite quarterly earnings that topped analyst estimates. Largely due to the windfall from lower claims payouts to reduced driving, Allstate’s net income of $5.46 billion for the year was 17 percent higher than $4.68 billion in 2019.
Wilson and Shapiro portrayed 2020 as a year of transition in which the growth platforms they put in place were either being acquired or reorganized. Allstate closed its $4 billion acquisition of New York-based National General Holdings last month, giving it a top five position among auto insurers selling through independent agents. And it eliminated the Esurance brand, which sold car insurance online and over the phone, instead moving that business into the Allstate brand and pricing policies sold directly at 7 percent less than what drivers get when they buy from an Allstate agent.
That makes 2021 a put-up-or-shut-up year on transformative growth.
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