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Allstate Gains from Less Driving, Extends Premium Payback

The Allstate Corp. ALL announced that it has extended its Shelter-in-Place Payback through Jun 30, 2020. This strategic step is taken in line with the company’s plan to reimburse a portion of the gains from lower accident claims on personal auto policies, led by infrequent driving on roads.

The coronavirus breakout compelled people to stay indoors, which resulted in a fewer cars on the road. This, in turn, has been a positive for auto car insurers  as they stand to gain from reduced loss costs, which further aid their underwriting margins.

Allstate will be returning nearly $1 billion over the three months from April to June by directly crediting its customers’ bank accounts with 15% of their insurance premiums. The company provides personal auto insurance through its brands, namely Allstate, Esurance and Encompass.

In the first quarter of 2020, the company created a Shelter-in-Place Payback program of worth more than $600 million. On the upside, the Shelter-in-Place payment could have a favorable impact on business retention. In the first quarter, the company reported a retention ratio of 88% in its auto business.

Regarding the potential impact of the coronavirus on auto insurance, management believes that profitability has been and will be affected by a reduction in miles driven, which will improve overall loss costs. While the improvement in loss cost has been significant, it will decline over time as the economy begins to reopen, and there are several offsets.  

First, the drop in the number of drivers on the road increased the driving speed, which in turn, may result in higher severity per claim. The company is also likely to incur additional bad debt from some customers who chose to take extended payment terms.

On a long-term basis, if the global auto parts supply chain is disrupted or parts prices are raised by auto manufacturers, repair costs could be flared up in turn. The plaguing pandemic and economic slowdown might also deter growth. If the loss costs continue to decline from the prior-year level, the lower required rate increases will limit average premium growth.  Also,  the affect  on new business is unclear since weak vehicle sales can hamper new business.

The company also announced that that it is extending the sign- up period for free identity protection to Jun 30, 2020 for all U.S. residents, considering the rising incidence of cybercrime.

Other insurers that refunded a portion of the auto premium collected include The Travelers Companies, Inc. TRV, The Progressive Corp. PGR, The Hartford Financial Services Group, Inc. HIG, Liberty Mutual, Geico, a unit of Berkshire Hathaway et al.

Allstate carries a Zacks Rank #2 (Buy). 

You can see https://www.zacks.com/stocks/buy-list/?ADID=zp_1link&ICI... _1link">the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The stock has lost 15.4% year to date compared with the  industry’s decline of 20.9%.



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The Travelers Companies, Inc. (TRV): Free Stock Analysis Report
 
The Allstate Corporation (ALL): Free Stock Analysis Report
 
The Hartford Financial Services Group, Inc. (HIG): Free Stock Analysis Report
 
The Progressive Corporation (PGR): Free Stock Analysis Report
 
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