Good morning, everyone. Thanks for joining. Got a great, great presentation upcoming. Allstate, which hopefully most of you have heard the name. It's the first time just talking to Tom Wilson, CEO. I think it's the first time that they've been to the conference, so really, really happy that they've joined us. And, you know, Tom's going to, you know, be here and talk a bit, talk a bit about the company. For those of you, if you don't mind, sir, I should introduce myself. Adam Klauber with William Blair, run our insurance group. But again, really excited to have Allstate, and it's a company that, you know, we've known and have followed for a while. And Allstate has always been one of the top, top competitors in the U.S. auto insurance, home insurance businesses.
The company in the last number of years, nothing ever moves that quick in insurance, in the last number of years, has really been, you know, doing what I'll call transformative type moves. And I think the Allstate of today and what I'll call tomorrow, over the next couple of years, you know, I think is gonna be much different in ways subtly than, you know, what we, what we saw. So I think it's a really exciting time to look at the company. We've been very favorable. It's been our top pick through the year. So again, you know, really happy to have the company talk, talking to all of you. Tom, with that, if you want to jump in.
Well, good morning. Thank you, Adam. He knows us well, so it's always nice to be here. I was particularly excited when I see Growth Conference. We like to be at a Growth Conference because that's where you're gonna make a bunch of money when we turn out and show you we can grow. So first, good morning. Thank you for investing more time in Allstate. Let me begin with the Surgeon Genera l warning that we use forward-looking information, non-GAAP measures, and you need to look at. Whatever I say, you should consider in context of all the different stuff we give you. Look at the website, look at the 10-K, look at the 10-Q. You can go to allstateinvestors.com, and you can get all the information you need.
Let me start by saying I, it's, of course, you expect me to think this, but, I believe I can give you some facts today to show you that it's true, that Allstate is a unique investment opportunity. Because when you buy and invest in Allstate, you get not only a really strong company that knows how to run its current business really well, you get a company that's innovating and trying to increase, to create shareholder value. Now, I'm gonna give you, we're gonna do a deep dive on one particular example of that today. Let me start, though, by reviewing, our strategy. So, our strategy is relatively simple. It's two ovals on the left. One is to increase personal property liability market share. As I mentioned, auto insurance, home insurance, boat insurance.
We want to sell more of it and have a bigger share of that. And then we want to expand the protection we provide to customers, and we have a whole range of things we sell to customers, whether that's warranties on their appliances or their TVs, or roadside service or identity protection. We have a whole range of things we want to sell to customers. And that's intentional because as you'll see, as we transform the upper oval, then we need to make sure we're providing agents and our customers more things to sell on the bottom oval. The bullets on the right show our approach as to what we're doing to create shareholder value. So, we have a long history of making money in auto insurance.
So if you look at auto insurance in total, and the key competitors, there are three or four companies that pretty consistently always make money. That includes us. What happened then is the supply chain issues and inflationary pressures, from and which are really the consequences of pandemic, really disrupted that industry and that business model. So auto profitability eroded, given the higher cost to either repair or replace costs. Remember, the replacement costs for cars went up, used car prices went up by 60% in two years. I mean, that's a large part of your cost of goods sold, and you price on a lag basis, it takes you some time to catch up. We've also seen a lot more lawsuits against our customers.
So you get sort of a fender bender, and you get sued these days, as opposed to being in a very severe accident. As a result, what did we do? We had a four-part plan, which included raising prices. So we've raised prices in the Allstate Insurance auto policies by over 32%, in two years. At the same time, we reduced our expenses. At the same time, we said: "You know, if we're not making money on this stuff today, we should stop selling new stuff." So we backed off on growth, which improved our profitability, and then we've been working on improving our claim effectiveness. That's working. We're well on our way to getting attractive returns in auto insurance, and as Adam knows well, since he follows us so closely.
The second way we're creating value is to grow. So if you look at our valuation on any basis versus companies that grow faster than us, you'll see what a substantial discount, and we need to address that, and we're going to do that by growing. That's both in auto and home insurance in particular. We have a number of things we're doing there. It's really, we call it transformative growth. It starts with really saying it's about getting our price lower, that about 70% of the purchase decision is made on price. So we had a good product, slightly premium price. Not, we weren't as expensive as people like Chubb and stuff like that, but slightly premium price.
We said, "We need to be more, we need a better price." First way you get there, cut your expenses, and so we have done a dramatic reduction in our expense reduction. At the same time, we said, "You know, you can't just, you can't just cut price by cutting expenses forever. You need to figure out how to design your products differently." And so we've been designing our products around affordable, simple, and connected. Affordable, pretty clear. Simple, insurance gets complicated, too complicated for most insurers. It's. I think of it like built-up wax on a table. You remember that Lemon Pledge commercial? Like, insurance products have too much built-up wax. And so we said, "We got to clean some of this stuff up.
If we clean it up, it'll make it cheaper, make it easier for customers." And then we also said, "You need to be more connected." And so we've been working on making our customers more connected. So first, cut prices or cut our expenses so we can have a more competitive price, offer a different product. So we've done that. We've launched a new auto product in nine states right now. It, when you do it direct, and it gives people pre-populated three offers just for you, so you don't have to figure out, like, "What's my deductible again?
And I don't remember what limits even mean, and, like, what's bodily injury limits?" So we configure it for people, and we're working on building machine-based learning to populate three things, and it'll tell you which one is right for you. At the same time, we needed to expand our distribution, and so you're trying to expand distribution and lower your costs. And so Allstate agent distribution is extremely important to many of our customers. And so what we've done is we've changed the way they're paid so that they're more incented to write more new business, and they get less on renewals because that's what customers value. Customers value help in buying their insurance, not so much on getting their bill. So we changed that. And so that's helped us lower our costs.
At the same time, we're giving them these new products. Those new products come with new technology, which makes them more effective. So we're expanding distribution through the Allstate agents. The first thing, though, you'll see with our Allstate agents is we have fewer of them now because some of them were relying on the renewals. It was just a good way to do business, build your business up, get a bunch of renewals, and they didn't have to sell that much. Can't live that way at Allstate anymore. So we now have fewer of them, but our total productivity has gone up. So we're actually selling more with fewer people, so that's, that's working.
We also took our direct business, which we were okay at, not great, and we said, "We have to be better at direct and build a world-class direct operation." So we've done that. At the same time, we said, "Well, customers, if they get an agent, they want to pay for an agent. But if you're price competitive, if you buy direct, you don't want to pay for an agent." So we lowered the price. So if you buy an Allstate product over the web through us, you pay 7% less than if you buy it through an Allstate agent. That's 'cause you get less. We didn't like... You know, people talk about channel conflict and can't do it, and we're like: This is what people pay for. If you want an agent, you'd be happy to pay for them.
And you just as an agent, that creates a system where they have to create value for their customers to justify the fact that they're paying them more. At the same time, we decided to change the way in which we went to market in the independent agent business. So remember, in the insurance business, there's. You can have exclusive agents sell only for you. Those are the Allstate agents. You can sell direct, which is either the web or a call center. And then you have independent agents who sell other people's products. We had been in that business for a long time, hadn't been. We bought a business from CNA, and, good news is we didn't pay much for it. The bad news is we never really figured out how to make it grow.
and so after about two or three management teams, I went to Barry Karfunkel, who owned National General at the time, or controlled it, and I said, "Look, here's the deal. I've been trying to grow an independent agent business selling auto and home insurance for a long time, not been successful at it. I should be successful at it. We're just talking about auto and home insurance, like, we know how to do that stuff. but, so I have to decide, do I get another management team, or do I sell the business? I've decided I'm gonna sell the business. There's only one catch: I want to buy you first. so I'm gonna buy National General. I'm gonna give you our Encompass business.
You can do whatever you want to it, but I want you to take that business and fold it in, and we want to win big in the independent agent channel because there's nobody really challenging Progressive on a national basis in personal lines." And so we did that. That business is now about two times its size, and so we're happy with that. So expanding distribution was important. With auto profitability improved, we're now able to start advertising again, and so you'll see our direct business start to expand. At the same time, we've been innovating in the claim business to make sure that we in terms of digital photos, we think we're probably the leader in using digitization and analytics based on photos in the claim business.
A little hard to tell 'cause you don't know what everybody's doing, but we're quite far ahead, and all of that required a new tech ecosystem. So, in a sense, what we did was we reduced our strategic risk by taking increased operating risk. 'Cause what I just described, we kind of changed everything across the whole thing. Think about that. We changed our expenses, we changed our pricing, we changed our products, we changed how we distribute, we just had to build a new tech ecosystem. So that was really driving a lot of our growth in auto insurance. And homeowners is another place where we believe we can grow. And I want to go down to the second point. So National General, I said we paid $4 billion, $4.1 billion.
It's, as I mentioned, it's now, you know, headed towards a rate of doing about $10 billion a year, which is about twice what it was when we bought it in 2020. We think there's good growth opportunity, particularly in homeowners. So in the homeowners business, I mean, whether you read The New York Times or something else, you'll see that, it's somewhat of a tumultuous market for consumers today because of all the weather. We're really good at homeowners, and we did it by innovating over a long, long period of time. Again, think of the whole business model, so everything from the product, to the way we price, to the way we distribute, to the way we settle claims. We did that, and we are quite successful in the homeowners business.
And so we are now taking that and using that to expand National General from what was primarily a higher risk or non-standard insurer insurance company into what's standard, which are more traditional risks, in which include auto and home and bundling. And so we think we have a great opportunity to grow there, and we're excited about our opportunities there. If you go to... So that's another way we can grow, is expand National General. We also another way we've grown income is by having an enterprise approach to our our investment portfolio. So we have, we've done well there. We've extended duration with rates up. We've reduced equity. But we, we don't think about it like we're not like a hedge fund or something like that.
We just look at it as, where do we want to take risk on an enterprise basis? So when we weren't making money in auto insurance, we looked at the investment portfolio and said, "You know, like, there could be a chance for a recession here. Let's dial down our public equities." And we did because that takes less capital, because we didn't want to have auto insurance profits now and have a recession. That would not be good from an enterprise standpoint. At the same time, we said, "You know, we think we can get a better risk-adjusted return if rates move up." So we took our duration down, and then, as soon as rates started to move, it took us about 12 months, but we moved our duration way up.
And so now we have more investment income coming from that portfolio. At the same time, we believe we can expand the other stuff we sell to people. And one example of that is our SquareTrade, which we bought in 2017. It sells warranties, protection plans through basically retailers: Costco, Target, Home Depot, Walmart. When we bought that business in 2017, it had about $300 million of premium. It'll clock $3 billion, maybe it clocked $3 billion in the last year, so it's about 10 times its size. It makes about $120 million a year. Its compound annual growth rate's over 33%. We sort of swept through the United States and retailers, and now we're headed internationally. It's an innovative approach.
Think of it like a reverse logistics business as opposed to a straight-up underwriting business because what happens is people buy a couch, they spill something on the couch, we have to help them get it cleaned. They pay us to do that reverse logistics for them. So we're excited about the growth opportunities there. Underlying all of that is innovation, so, and really comprehensive business model innovation as opposed to just some new product. So and it's, we like to think of it as we're pursuing a technology-driven strategy rather than a strategy supported by technology. So the last one is, you know, I got a strategy, build me some applications to do this. Technology-driven strategies say, how can we use technology to really drive a difference in growth in this business?
So I'm going to give you an example of that, which is telematics. Telematics is, of course, tracking how people drive in their car. But the message here is, first, is that innovation is not a one-time thing. You really have to do it over a long period of time. Over that period of time, new opportunities show up that develop, and third, that you really want to embed it fully into your company. So we got started in telematics about 14 years ago, and we have many first-time innovations. So we were the first to create a mobile data application app, as opposed to having this device that you paid $62 for from Danlaw that you put in an OBD port that tracked our car. So we said, "Nah, you don't need to do that.
If people have cell phones, maybe we can figure out how to use a cell phone." We did that. We were successful at it. We also were the first people to create pay-by-the-mile, which is a really good product for a customer if you live in an urban city. Like, if you live in New York City, you really don't want to pay the average of 10,000 miles, if there's... You know, maybe you drive out to Long Island, but you're not driving that much. Or if you're elderly, you can, it's a really good product for people who just pay by mile. So we've been innovating, but to do that, you got to know how many miles they drive, right? So you got to be able to figure that out.
In 2016 then, we created Arity, which is a telematics company, and we did it to both serve Allstate because we're like, "We need to do this for ourselves." We said, "You know, once we learn how to do this, other people are going to want to do this too. And so we might as well do it for them, make some money from selling it to them because somebody's going to do it for them, so it might as well be us." So we created Arity. It's innovated and grown since then, and it now has three businesses. It provides telematics services to insurers like us and some regional carriers. It provides leads to insurance and mortgage companies. So a lot of us, you're always trying to get new business, so you're buying leads.
Adam follows some of these companies, and then it gives access to mobility data. So the platform consists of relationships to acquired data, which is on the left there, which then we process it, and we turn it into insights, and then that enables insurers and other companies to really create value for customers. And could be public safety people trying to figure out who's driving on what roads. So Arity now is connected to 40 million drivers, which is about 15% of the U.S. market. We have over 100 digital publishers. The company generates about $130 million in annual revenue. Importantly, it has 1.5 trillion miles of driving data, and we pick up over 1 billion miles a day, following these companies.
And so this is an example of how we, Allstate is working to create value for not only our customers, but then for other people, so that we can create value for shareholders, which is, it's really about creating the future rather than following trends. So with that, we'll go wherever you want to go, Adam.
Yeah, great, Tom. That's, that's great. I don't know if this is on or not. Yep, great. Great overview about, you know, a bunch of the initiatives. Can we dive into one of the growth pillars is you've done a lot of work in digital, and you've really come up in your digital capability. So I guess, one, how important is digital to growing your platform? And two, from a technology standpoint, what have you done in the last three, four, five years to upgrade your digital capability?
Well, it's an important, broad question, as you would expect. So first, everything we have to do is digital, right? So everything from, like, we just live on data, and we have, you know, quadrillion amounts of data, and so you have to make sure you've got that data in the right place. Then you have to make sure you have an ecosystem that enables you to use it, and then you have to make sure you have talent that knows how to use it. And so, with the ecosystem, what we've done with transformative growth is build new technology, particularly in the property liability business, on proprietary product platform.
And we use what are called APIs, application programming interfaces, which enables you to componentize stuff and be more flexible. To do that, in a good way, you have to change the way you build it. And so we have a different way in which we, design, build, and then implement technology now than we used to. We're not as good as I'd like us to be, but we're a lot better than where we were. So it used to be it'd take six months to get something done. Now, we'd, like, do a demo in, like, two weeks. We can, we can do stuff. We can change stuff on the fly. So in the given example, the new auto product that we have, on the web, you can do a quote in less than three minutes.
You can do a home quote, add on to that, and it, like, just happens, in seconds. It has... It collects data. We have data on 310 million Americans. It'll take that data and decide what the right offer is for you. It'll populate that screen and give you a good, better, best offering. And then the machine learns over time so that when we turn that piece on, it'll decide what, where you hit the bid. So what kind of deductible do you want? So you'd have a higher deductible 'cause you've got more money. Somebody who's living in Des Plaines would have a lower deductible. So, there's... We're using it to really change the entire way that people operate. Another way we do it is in claims.
So a QuickFoto Claim, I don't remember exactly when we launched it, Brent. A long time ago, 2017. And basically, it used to be you got in a car accident, we drove out to your house, or we met you at a body shop or something like that, and an adjuster looked at the car and said: "You know, how much it cost to fix this? Got to fix the fender, got to..." They could do about 4.5 cars a day. Today, you send us 6 pictures, and we do it in minutes. We can have you paid off. We can get you the money in a matter of hours, not, like, 2 weeks.
Adjusters can do over 20 a day, and pretty soon, the computer will do a bunch of them. So it really embeds completely into your system, and it's better for the customer, better for cheaper, faster, and actually more effective. There's a bunch of stuff you have to learn, like, you know, people know how to adapt their photos. So, you know, is this photo really the car you insure? Is it really damage? When was the photo changed? So it's kind of gets embedded to, into all that you do. So we're investing heavily in a variety of things. We're now investing in some... AI is kind of a funny word. I think it was really more like augmented intelligence, as opposed to artificial intelligence.
But, if you think about it, traverses across the company, there's a lot of stuff we do on AI or machine-based learning which is kinda a less cool way to describe it, in a vertical. So, I can use that to decide what to offer you in what kind of product to offer you. That's what machine-based learning does. And so you don't have an agent trying to, like, think in their head, "You know, I know Brent, and I know him. What deductible should I put on here?" The machine just does all that. Traversing augmented intelligence is really when you're looking at it across the company. So let's take a state, and let's say I wanna decide how much marketing to do.
I need to know how good my agents are. I need to know how competitive my price is. I need to know what kind of claims capacity I have if I grow like crazy. And so you could imagine that looking across that and thinking of, you gotta turn all the dials. That's complicated. But we think with where we're headed with some our artificial or augmented intelligence , it'll help us. So really, yeah, like we're just a digital company. I mean, it. That's why it's a technology-driven strategy as opposed to, "I wanna do something, give me some technology to do it.
Great. You know, another pillar of growth or strategic action. Again, you changed the commission structure for your agents to incent growth. I guess, when did you do that? And there's been a lot of dislocation, as you mentioned, but are you starting to see more seeds? Is that driving more growth within the agency, the captive agent platform?
Yeah. So, let me describe. So captive agents, they work only for us. They sell only for us. And, when we got started in the program, Adam, which was a couple of years ago, I think we had 10,000 of them, and we had, about another 26,000 people in those agencies selling stuff just for us every day. And, when we looked at the cost of that, it was low teens. And we asked customers: how much do you want to pay? And they didn't want to pay that much. We said, "Okay, we got to figure out how to do this differently." So, we changed it by raising how much they get for new business, and lowering what they get for renewals.
And we're probably down to about 8,000 Allstate agents. The licensed sales professionals is down not as much as that because some of the agencies have gotten bigger. And what we're finding is that the agents are leaning into this, selling more, so the actual units are up. Even though, remember, we were in a kind of a shutdown mode in some states where we're like, "We're losing too much money in auto insurance, so I don't want to write anymore." So, despite the fact that there were three states in particular where our volume was down because of what we did, not because of what the agents did. When you take that out, agents are doing well, they're embracing it. I think there's more to come there.
I think that that group will still transition. The objective for us is do what customers want, give them the kind of person they want, make sure if there's a transition from one agent to somebody else, they feel taken care of, and at the same time, do it at a cheaper price. And then that's one of the reasons we have the lower oval. Okay, if you can't make a full living on just selling auto insurance and home insurance, and we have a huge cross-sell, like, number, our cross-sell is, like, way above everybody else. Sell other stuff. You know, if I want to sell you cell phone insurance, identity protection, whatever, think of it like having a local store, and a local store could not exist on bread and milk alone. They sell other stuff.
We just have to help our agents sell other stuff so that they can have then viable local businesses.
Great. More of a, I guess, macro industry question. A lot of investors, I get this question all the time, that there's, you know, a nice groundswell, there's a lot of pricing power in the industry today. No one can really predict when that pricing power will ebb. But from an investor standpoint, what are the signs that they can look for, saying, "Okay, maybe the industry doesn't have as much pricing power in six months, twelve months, two years." What type of things should they be looking for for a gauge on pricing power, for in auto, specifically?
Yeah, I think, well, specifically on... Well, auto and home, I think are in the same place. So I didn't talk about home, but I think in home insurance, we were up 12% or 13% in average prices last year. So, but auto is the most price sensitive, so that's the right place to start. So, we really didn't. I thought we would have a lot more pushback on raising prices. When you raise prices 16% a year for two years in a row, on something that's, you know, a decent, you know, it costs people $2,000 a year, that's not nothing to people.
We did end up as an industry having some pricing power, in part because I think the population had more money in savings, whether they got that because they weren't going out or the government gave it to them, doesn't really matter from our standpoint. They were willing to pay it, and then everybody else went along with it. So you, when you shopped around, it wasn't like nobody—everybody had to pay more for cars. Like, it just, everybody had more lawsuits, so it wasn't like it was just to surprise people. So, the industry was able to accomplish that to get back to profitability. I think the thing I would look for is the difference between the increase in loss costs and the increase in pricing.
So, I don't think loss costs will continue to go up at the rate they have in the last two years, so therefore, your prices don't have to go up as much. So it's less about pricing power than the difference between those two. And then there are some companies that have been more proactive in getting their profitability in line, but a bunch of the insurers don't make money, mutual companies and stuff like that. So I'd worry more about the companies to say, those that are making money, that you can invest in, that are public. You know, are your premiums going up faster than your loss costs? And that just maintains the margins. It's interesting. Nobody's really thought about it this way, but you think about growth, like, what's a growth business? I don't know.
Being up 12% auto premium seems like a pretty good growth rate. It's really true, in growth, of course, what you're looking for is you care about the top line a little, but you really care about the bottom line. But if your combined ratio can stay the same and your top line goes up by 12%, that's 12% increase in underwriting income. So I think there's still growth left. I think what we'll see is you missed that, though, because we were... Or you didn't miss it, we missed it, too. Sorry. You know, when you're not making money, you don't see that growth. So what you'll have is on the upswing, you'll have a greater dollar profit per share for an individual auto policy because the price is just higher.
That's the end of the discussion. Thank you, Tom.
Thank you.