Insurance giant
Allstate’s second-quarter earnings were decidedly underwhelming, and the company’s stock fell by 10% Aug. 4 – the biggest dip in six years.
One of the largest drivers of Allstate’s disappointing performance was its higher-than expected auto claims costs; the company paid more in quarterly claims than it collected in premiums, according to a Crain Chicago Business article. The last time that happened was in the fourth quarter of 2012, when Hurricane Sandy sent auto claims skyrocketing.
But there’s no natural disaster to blame this quarter. In a conference call with analysts last week, Allstate CEO Tom Wilson and President Matthew Winter attributed the increased claims to more drivers putting in more miles on the road, according to Crain.
But if that’s the case, why aren’t other auto insurers seeing the same thing? Both Progressive and
Travelers saw second-quarter losses as a percentage of premiums drop year over year, according to Crain.
But top brass at Allstate insist that the spike in claims the company saw was the result of external factors, and not the company’s underwriting practices, Crain reported.
“While miles driven isn’t the sole driver of our increased loss trends, it does explain a significant amount of the result,” Winter told analysts.
But considering these “loss trends” aren’t extending to other insurers, many Allstate shareholders are wondering whether the company really grasps the problem.
“Obviously, a lot of investors think they don’t know what’s happening or that they’re wrong,” Sandler O’Neill & Partners analyst J. Paul Newsome told Crain.
This is Allstate’s third consecutive quarter of higher claims, according to Crain. In response, the company has already begun raising its auto insurance rates – and will raise them even more in the second half. It’s also planning to slash its advertising budget and cut other expenses – including, ominously, “employee-related” costs, Crain reported.
