Allstate's Auto Insurance: Losing To Competitors?

Allstate is one of the largest auto insurance companies in the United States, but it has been losing customers to competitors. In 2020, the company posted its worst auto insurance customer retention numbers in two decades, with a renewal rate of 87.5%, down from 88% in 2019. This decline has been attributed to various factors, including the COVID-19 pandemic, the discontinuation of customer loyalty programs, and competitors offering lower rates. Allstate has responded by pursuing a “transformative growth plan, which includes competing harder in sales over the internet and phone, as well as through independent agents. Despite raising rates, Allstate continues to lose money on auto insurance, with higher payouts for claims and expenses than the premiums collected.

Allstate's auto insurance renewal rate is at its lowest in two decades

There are several factors contributing to Allstate's decline in auto insurance renewals. Firstly, the company's rates are higher than the national average, especially for teens, young adults, and seniors. Allstate's sample premium of $3,374 per year is significantly higher than the national average of $2,068. This price difference has made Allstate less competitive in the market, as customers have more affordable options available.

Secondly, Allstate's decision to discontinue its "Shelter-in-Place Payback" rebate program, which provided 15% rebates to customers during the pandemic, may have also contributed to the decline. Competitors such as Progressive and Geico extended their rebate programs, while Allstate reverted to its old rates.

Additionally, Allstate's retention rate has been impacted by customers changing lifestyles, driving less, and shopping around for more competitive rates. The company's CEO, Tom Wilson, acknowledged that retention is challenging to figure out and that there are various factors at play.

Furthermore, Allstate's auto insurance ratings and reviews are average or below average in some areas. While the company offers strong coverage options and multiple discounts, its customer service and claims handling scores are lower. Allstate's J.D. Power Claims Satisfaction score is 882 out of 1000, slightly above the national average of 878. However, its ratings on the Better Business Bureau (BBB) are low, with a 1.1 out of 5-star rating from customers.

In summary, Allstate's auto insurance renewal rate decline can be attributed to a combination of factors, including high rates, discontinuation of rebate programs, customer behaviour changes, and average or below-average ratings in some areas. The company is facing strong competition from rivals such as Progressive and Geico, who are attracting more customers with their competitive pricing and retention strategies.

Allstate's rates are higher than the national average

Allstate's auto insurance rates are higher than the national average, and this has been a cause for concern for the company. In 2020, Allstate posted its worst policy renewal rate since 2001, with a retention rate of 87.5%, down from 88% in 2019. This was due in part to the COVID-fuelled price competition among auto insurers, as well as Allstate's decision to revert to its old rates in most states while its competitors lowered their prices.

Allstate's rates are about 25% more expensive than the national average, which is currently $2,681 per year or $223 per month. For a 35-year-old driver with good credit and a clean driving history, the average cost of full-coverage insurance from Allstate is about $3,340 per year or $278 per month.

Allstate's rates are higher for teenagers, young adults, and seniors. For teenagers, the average annual rate is $4,351 for males and $3,478 for females, the second-highest among providers. For young adults, Allstate's rates are the highest for women and the second-highest for men. Allstate also has the highest sample rates for senior drivers, with an average annual rate of $2,987 for women and $3,053 for men.

Allstate's rates are also higher for drivers with poor credit, a speeding ticket, an accident, or a DUI on their record. These factors can significantly increase a driver's insurance premiums.

While Allstate offers a range of coverage options and discounts, its higher rates may be a factor in why some customers are choosing competitors with lower rates, such as Geico, Progressive, and State Farm.

Allstate's customer retention suffered due to the discontinuation of the Shelter-in-Place Payback rebate program

Allstate, one of the largest automobile insurers in the US, suffered a decline in customer retention in 2020, posting the worst policy renewal rate since 2001. This was partly attributed to the discontinuation of its "Shelter-in-Place Payback" rebate program, which had been implemented during the early stages of the COVID-19 pandemic.

The Shelter-in-Place Payback program was introduced in April 2020 as people drove less due to the pandemic. Allstate, Esurance, and Encompass personal auto insurance customers received a 15% rebate on their monthly premiums for April, May, and June. The program was extended through June as the number of miles driven remained below historical levels.

The rebate program was well-received, with Allstate CEO Tom Wilson citing the company's desire to “retain every customer that we worked hard to get in the first place." However, when the program ended in the summer of 2020, Allstate reverted to its old rates in most states. This decision contrasted with those of competitors like State Farm, Progressive, and Geico, which lowered their rates in select states.

As a result, Allstate's auto policy renewals for its namesake brand, which accounts for a majority of its revenue, decreased. The company's retention numbers slipped, and it posted a 0.5% decline in policies at year-end, with 21.8 million policies in total. This decline in customer retention was a significant concern for Allstate, as the company has long prioritised customer retention to drive growth and maintain market share.

Allstate's rates are more expensive for different types of drivers

For instance, Allstate's rates for teens are higher than the national average for that age group. A 16-year-old on their own policy will pay especially high premiums. For young adults, Allstate's rates are also more expensive than the national average. Similarly, Allstate has the highest sample rates for adult drivers, defined as married 35-year-olds, among the providers analysed.

Senior drivers, who generally pay lower insurance rates, also face higher costs with Allstate. The company's rates for married 60-year-olds are the highest in the analysis. Additionally, Allstate's rates increase significantly for drivers with poor credit, a speeding ticket, an accident, or a DUI on their record.

The cost of Allstate's insurance is influenced by factors such as age, driving history, credit score, gender, and marital status. The company's rates tend to be higher for younger drivers, those with a poor driving record, and single individuals.

Allstate's auto insurance algorithm squeezes big spenders

Allstate's auto insurance renewal rate is at its worst in two decades, with the company losing auto insurance customers at the fastest rate in nearly two decades. The company's auto policy renewals for 2020 were 87.5%, down from 88% in 2019. This was Allstate's worst performance since at least 2001 and resulted in a 0.5% decline in policies at year-end, totalling 21.8 million.

The COVID-fuelled price competition among auto insurers took a toll on Allstate, which prides itself on retaining customers. The company's CEO, Tom Wilson, attributed the decline in policies to various factors, including people's changing lifestyles and driving habits during the pandemic.

However, a more concerning reason for Allstate's customer retention issues may lie in its use of a secret auto insurance algorithm that squeezes big spenders. In 2020, it was revealed that Allstate's algorithm resulted in a "suckers list" of Maryland customers who were charged higher premiums than they should have been, based on the company's new calculation of their risk of filing a claim.

Allstate's algorithm was designed to adjust customers' policies in the general direction of the new risk model, with the stated goal of limiting policy cancellations due to sticker shock. However, a statistical analysis of the Maryland documents revealed that the algorithm was biased against certain customers, particularly those who were already paying the highest premiums. These customers would have borne price hikes of up to 20%, while drivers with cheaper policies would have been charged a maximum increase of only 5%.

Furthermore, Allstate's algorithm would have denied meaningful decreases to thousands of customers who were overpaying, offering only minuscule discounts instead. Seniors in Maryland were overrepresented among those who were owed discounts but would not have received them.

Allstate's use of this algorithm has been called into question, with Maryland ultimately rejecting the plan as discriminatory. However, the company has continued to propose similar plans in other states, some of which have been approved and are actively being used.

While Allstate has distanced itself from the term "price optimization," it is clear that its auto insurance algorithm has contributed to its customer retention issues and may have led to unfair pricing for its customers.

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