Back everyone. Are we on? There we go. Okay. Welcome back to the Bank of America Financial Services Conference here in the insurance sleeve, and it's a crowded room. Allstate's very popular. I can say we're really pleased. We have Tom Wilson, Chairman and CEO of Allstate here. This is your twenty-seventh year, Tom?
At Allstate? That sounds about right, yeah.
Yeah.
Been around the hoop a long time.
He's been CEO since 2007. A couple of things just wanna mention about Tom. He's been a very big public advocate for a broader role in society for people getting living wages and diversity and equity in this business, and Allstate's been on the pioneer of that movement. He chairs the board of trustees of the U.S. Chamber of Commerce Foundation. Under Tom's leadership, Allstate has significantly reduced its catastrophe exposure over the years, becoming a improving ESG contributor. It's very successful.
He's made a number of acquisitions under his tenureship. Esurance, SquareTrade, InfoArmor, National General. He's currently focused on many things, but the Transformative Growth strategy at Allstate is a key part of the story, and I think that Tom's gonna tell us a little bit about that with some prepared remarks. Then we'll get into Q&A, and you can participate in the Q&A if you want, but really pleased to have Tom Wilson. Thank you, Tom.
It's good to be here. Well, we do have some slides we'll walk you through. The first slide. Do I have the clicker? Maybe not.
Mark. I'll give to Mark.
Okay. All right. We'll just If we go to the first slide there, Mark. This just says, you know, listen to what we say, but read what we give you. Says, please, make sure you look at everything we got. Jess Merten, our CFO, is with me, as is, Mark Nogal. Just make sure you look at everything, so like, keep the lawyers happy. Let's go to the first slide. I wanna start with our strategy to increase shareholder value. Many of you have seen this slide. The two ovals on the left are our strategy. First, increase personal property liability market share through Transformative Growth. I'll talk a little bit about that in a minute.
Same time, we're expanding the many other protection offerings we have, which are listed in the bottom oval. Those, the bullets on the right show what we're doing right now to increase shareholder value. First, we're focused on increasing auto insurance profitability. Won't be a surprise to most of you. Increasing our property liability market share through Transformative Growth, though, is the next wave of that. What that does is that should increase the multiple. With higher growth, first we get ROE up, first line, second one, get the growth up from where it has been by increasing market share. That should increase the valuation multiples. At the same time, we're expanding our customer base through the broad distribution, the innovative product offerings that leverage the stuff in the middle, our star brand.
I'll give you an example. We'll talk about protection plans in a minute. Also highly focused on enterprise exceptional capital management. Utilizing our capital, whether that's through organic growth, through acquisitions, or in the absence of those, we have a track record of returning capital to shareholders, and we've repurchased about 30% of our outstanding shares in the last five years. That should all go into our target of 14%-17% return on equity. We'll go to slide 22 or slide 23, talk about 2022. If you start at the top, revenue's $51.4 billion, or 1.6% higher than the prior year. Underneath that, the property liability revenues were up 8.5%.
We'll talk about price increases in auto and home insurance in a minute. That was offset, though, by lower investment income because we had a great 2021 in the performance-based space. If you go down the table, we had a net loss of $1.4 billion. That reflects an underwriting loss, as well as a decline in the value of the equity portfolio. The adjusted net loss, which excludes that decline in the equity portfolio and some amortization of intangibles, was $262 million. There was a property liability combined ratio of 106.6, and that was primarily due to auto insurance, hence that first point on that slide. The homeowners insurance business, the investment income, and protection services businesses all did well last year.
Slide four provides an overview of our auto insurance results. Josh knows these well. In the chart on this page, you can see we have a history of having a mid-90s combined ratio from 2017 through 2021. That gives you, of course, a four to five point margin, which generates a really attractive return on capital in that business. The lowest combined ratio, which was in 2020, was a result of the pandemic. What happened, people quit driving, people quit getting in accidents, profitability went way up. That number there is net of the $1 billion of shelter-in-place payments that we gave back to customers, voluntarily in that year. In 2021 and 2022, the combined ratio starts to go up, as people started going back to work, started driving more, higher accidents.
In addition, the loss cost started to really escalate in 2021. That was because of increased severity. Some of that was more severe accidents, and some of that was just the cost of replacing or repairing cars. So you've seen the used car prices were up, like, 60% through the pandemic. The combined ratio that went up to 95 in 2021, 110 last year. Part of the increase in 2022 was due to the increase in reserves from prior years. So that 95, when you look back on the reserve changes we made this year in 2022, was really more like a 97, because we had underestimated how expensive it was to fix cars and bodies at that point. That was about 6.5 points on that combined ratio.
Slide five talks about, okay, what are we gonna do to fix this situation? There's 4 areas of focus, raising rates, reducing expenses, implementing stricter underwriting requirements, and modifying our claim practices to manage loss costs. Starting with rates, we implemented rate increases of 16.9% in the Allstate brand in 2022. Additional rate increases are being hunted down this year. Reducing operating expenses is a core part of Transformative Growth, and we're about halfway to the goal. We set up a goal in 2018 that we said by 2024, we're gonna be down 6% of premium to 23%. We're about half of the way there right now. That's helped us during this period where the loss cost went up. In fact, we got started on that early.
I'm really happy about it. Restricting underwriting actions on new business is in place in 37 different states where we're not making enough money. Claim practices have also been modified. We have strategic partnerships with repair facilities. We have 3,000 Good Hands Repair networks, where we get our cars in, we get a better deal. We buy parts in bulk, which is helping us keep our costs down versus our competitors. Obviously, not keeping our costs down enough in total, but better than our competitors. We use predictive modeling on all kinds of stuff in the company, as you would expect, whether that's repair versus total loss, that saves you money when you make that decision, or the likelihood of attorney representation in an injury.
Slide six shows how these impact the timing. Everybody's like, "Okay, we got it. You used to be there. You know how to get back there. You got a plan. You've been working on that plan since 2021. You know, show me the money," sort of Tom Cruise thing. This slide gets you there. You start on the left, that's the blue bar. That's the combined ratio in 2022, 110.1%, right? That's the number we just talked about. You got to normalize a little bit.
There was 4.5 points to that was due to either the prior year reserve increases that we just talked about or cats that were above normal in auto insurance. Our overall catastrophes were lower last year than we expected, but in auto insurance, they were high, in part because of the Floridian stuff. The second green bar reflects the estimated impact of auto insurance rates already implemented. These are done, approved, in the computer, waiting to spit out policies. The challenge, of course, then is we sell six-month policies. All the policies we sold yesterday, the day before we got a rate increase, we get the old price on, so we sell the new one.
It takes about a year to get through that incremental, for it to go from what we call written into earned premium. You can see that's about a little over 10 points of reduction of what's been done, but still to come. We assume there's some degradation in the rates we got. We assume people raise deductibles and people know how we're doing, so we think it's a good net estimate. Most of that will be earned by the end of 2023 because it was taken in either 2021 or 2022. Of course, at the same time, we don't think loss costs are going to moderate or gonna go away. They're gonna be flat.
Whether that's increased severity or frequency, that impacts the combined ratio going up. Then prospective rate increases in 2023 and other margin improvement actions that we just talked about have to meet or exceed those loss cost changes to get us down into our target level of mid-90s. We feel highly confident we'll get there. It's just gonna take us some time to do it. Let's go to slide seven and jump to the homeowners business. The graph on the left shows our homeowners insurance combined ratio. It shows it by company from 2017, along with the industry in green. As you can see, Allstate leads the industry. It's got an average combined ratio that's about 12 points better than the industry for that five-year period.
We had a combined ratio of 93.8 in 2022. That's got a lot of sophisticated competitors in there, whether that's Progressive, State Farm, Travelers. These are highly competent, sophisticated companies. As a result of our results, so underwriting income averaged about $650 million for the first part of that, and then it was $681 million last year. In comparison to the industry average, for that five-year period, this is kind of a stunning number. If we had the industry average, because we did better than the industry average, we made another $4.9 billion in underwriting income. That's how strong that advantage is. That's an annual average of about $975 million.
Bottom line, the integrated business model we have in homeowners is really unique. It's quite a competitive advantage. Now homeowners, it's not immune to the increase in loss costs either. Your houses have all gone up in price. You've seen lumber price go up. We have a different model in the homeowners business where the prices go up as house values go up. You don't have to file for rates, it just automatically goes up. Gross premiums in the Allstate homeowner business were up 13% last year. Some people have asked me, "Why don't you do that in auto?" It's 'cause auto car prices used to always go down. You didn't need it when they went down.
When they go up 60%, you sort of wish you had it. The risk selection, we're quite good at. We do required capital by geography, so we have targeted combined ratios. In a cat-prone area, we expect to have a much lower combined ratio than we do in a less cat-prone area. Our claims capabilities are good. We use everything from satellites to drones to look at houses and take care of them. We have a system that's uses third-party brokerage business as well. If we have a customer who buys auto insurance from us, but we don't feel like selling them homeowners insurance, like California and Florida, then we sell them somebody else's stuff. If you go to slide eight, I'm gonna talk about Transformative Growth.
This is a multiyear five-part initiative that's got five phases in it. I mean, it's not five-part. I mean, it's not really five years, it's five phases. We've been at it for three, we're not done yet, but we made a lot of progress. It's got a couple things: improve customer value, expand customer access, increasing the sophistication and investment in customer acquisition, modernizing our tech stack, and driving organization transformation. We're basically rebuilding the whole business model as we fly it. The bottom half shows what we get out of it, providing the lowest cost auto insurance by channel for the customers we're targeting. We're gonna maintain margins by reducing our expenses and using telematics pricing.
Providing a differentiated product and customer experience, we've invented features like New Car Replacement, Declining Deductibles, pay by mile, and we expect to continue to innovate on that kind of product stuff while giving the lowest price. The new technology we launched last year uses analytics and machine-based learning to offer a personalized shopping experience. At the same time, we're leveraging a really broad and efficient distribution system. We have strong capabilities in all three of the primary ways you buy personalized insurance of auto and home. I'll get to broader distribution in a minute. Branded agents, we have over 8,000 Allstate agents direct under the Allstate brand, and we sell cheaper under the Allstate brand than we do through the Allstate agents when we sell it direct. That's 'cause it doesn't come with an agent.
Like, our theory is you should pay for what you get. If you don't get an agent, you should not pay for it. If you do, you should pay for it. They just have to make sure they add the value necessary. Then we bought National General, so we have a broad-based independent agent. We're building on their non-standard auto business with adding our standard auto and our homeowners business, so to really expand that. That gives us the ability to really challenge Travelers and Progressive in that channel. Then the new technology stack, getting rid of old technology obviously makes you more agile and lowers your cost. We made a lot of progress in all these components. We're not done.
We still have work, a lot of work to do. The recent increase in auto loss costs may slow the benefits of increasing market share. It really depends what our competitors do. As we keep our prices lower than we would've historically because we're lowering expenses, we just have to see what everybody else does. We're highly confident the underlying assumptions in this thing work. Let's go to slide nine and talk about the non-property liability businesses, also protection businesses. We offer a wide range of stuff, right? We sell workplace businesses. Roadside service, car warranties, protection plans, identity protection. We sell to just about everybody you can think of selling to, whether it's independent agent, worksite brokers, Walmart, Target, Costco, Home Depot. You know, we sell to just about everybody.
They have good growth prospects, and they each have their own independent value. I thought I would just show the Allstate Protection Plans, which is just one of those, which we bought in 2017 for $1.4 billion. By leveraging the Allstate brand, back to the middle of that circle, right? Leveraging the Allstate brand, they have excellent customer service, and they've expanded the products with leading retailers. This has had tremendous growth. Revenues finished 2022 at $1.4 billion. It's a compounding annual growth rate of 36%. Policies in force increased nearly fivefold. To continue that growth, we've been investing in expanding both with appliances and furniture and internationally. That slowed income growth.
You see income growth kinda capped out there around $149. It was up a little bit last year 'cause of some one-time tax benefits. I'm okay with it slowing 'cause it's growing so fast. If you think about buying that kind of growth business at a 10x multiple, it's a pretty good deal. We have lots of other innovative stories in the protection services, and you should be thinking about those when you think about Allstate. I wanna shift to investments, and then we'll wrap up. But I wanna talk about investments not as to what we own, but how we think about it from an enterprise risk and return management perspective 'cause this is fully integrated, and we do this differently now than we did six or seven years ago.
In 2021, we decided to lower our overall enterprise risk because of the declines in auto insurance profitability. We said, "Okay, inflation is kicking us in the butt in auto insurance. Like, I don't want it to kick us in the butt in the investment portfolio, so what are we gonna do about that?" We also looked at sustained. We, we did not think that inflation was gonna be transitory, we said, "You know, yields are likely to go up, but, and we don't think they're gonna stop, like it's just gonna go up now." We wanted to avoid losses in the bond portfolio at the same time as we were dealing with an underwriting loss in the in-auto line.
A result that we decided to reduce the economic capital that we put in investments, and that was the first decision, just put less capital to it. That led to a shortening of the bond portfolio. As a result of that, we still lost money in the bond portfolio last year. It helped us mitigate about $2 billion of losses in bond portfolio by doing that. In 2022, last year, we were looking at the risk of a economic recession coming, and higher interest rates. We thought interest rates were starting to get to a place where we're interested in going longer. We adjusted the investment portfolio again. Growth risk was reduced. Interest rate risk was increased.
We sold down our holdings of investment grade, below investment grade bonds. We cut it about in half. We sold about 40% of the public equities. Then we started to increase interest rate risk by extending duration, so we took off some derivatives that we had in the portfolio. Duration will probably be further extended this year. We're not convinced rates have peaked at this point. We're kind of taking our time and doing it over time, kind of dollar weighting in. The net of that will be to increase investment income. It does, by the way, also lower the amount of capital we have to put against the investment portfolio, which positions us well, should we decide we wanna go risk out again, relatively quickly.
Net investment income last year, $2.4 billion. You can see from the portfolio, we lost money. Not a good year when you lose 4%. The only good news is other people lost more. If you look at the intermediate bond portfolios, they were down 9%. S&P, of course, we know well is down 18. Let me just close and go to your questions, wherever you wanna go, where we started. We are trying to be a purpose-driven company that empowers people with protection. Combined ratio, we get the combined ratio down to the mid-90s. We get good growth in homeowners, market share growth with Transformative Growth, continue to manage our capital well, and expand our other businesses. We think that'll add a lot of value for you.
Well, thank you for those prepared remarks. You know, I've often said, and I'm a storyteller, that's what I do, and I always called Allstate a Michelangelo sculpture, there's a mix of the. The idea would be that, you know, Michelangelo would cut away everything that wasn't the sculpture and it would unlock within. Back in 1990, Allstate was a very different company than it is today. Hurricane Andrew helped make the decision to go public to cordon off Florida and turn into Castle Key. Hurricane Katrina moved away from the coasts. 2009, 2010, 2011, tornadoes and hailstorms, Allstate radically reduced its catastrophe exposure to the company it is today. In the process of non-renewing these homeowners, a lot of auto policies were lost as well.
Then we get into the 14-16 distracted driving spike, and now we're in this time here. Allstate has never really had the opportunity to show that it can grow, certainly in auto. With Transformative Growth, as you sort of viewed it, is there a multiyear period of growth that comes into play following this repricing initiative? Or are we always in a competitive industry where the next thing is going to happen that's going to make it difficult for Allstate to really stretch out its wings and become bigger instead of being like what is a company with the best, most reliable, lowest ticket customers, and yet so profitable typically that, you know, it's very hard to add those customers again?
First, I love the analogy. Like I'm thinking of all the crap I went through, and it's taking a chip off the marble. I'm like, "Oh, thank you." Make me feel like that was a good. The story's, I think, accurate, but I wanna add something to it, which is, it is true that as we had to reshape the company, we had to give up some policies. I was good doing that. Like, no, you can't, you should make money in every line, every year, every state. We shouldn't be, like, trying to subsidize stuff. I think there's another part of the story which was a learning for us and me personally, which was, one, we had been pursuing through the time.
It wasn't like we weren't trying to grow, but I would describe our strategy in the early part of the 2010, 2011 period of time, after we came out of the financial crisis, as a premium price, high quality business that we thought we had, we had good margin, and we made high returns. That basically enabled us to hold share. We kinda, then we, and so we, This new strategy is basically it's about the price. You know, you gotta cut out $4.5 billion out of your costs. You gotta lower your auto insurance price. You gotta get out there, and you still gotta have differentiated products. You still gotta do all the stuff we've done worked to maintain share, but it didn't really work to grow share.
When we looked at where our competitors were, we said, "We just need to be." This is a lower price, low price by channel. That, I think, is one of the fundamental differences between the old Allstate and this Allstate. There's two other pieces. One was indirect. Indirect, we had Esurance. We sold it under a different brand name, obviously, and a different price. We realized that, you know what?
You know, everyone's like channel conflict and all that kind of stuff, and we're like, "You know, like, that's just something you manage." We're gonna sell under the Allstate name, best brand name out there, take $200 million of advertising from Esurance, throw it at the Allstate brand, and sell it 7% cheaper 'cause it doesn't come with an agent, and we're just gonna have to get used to it because customers are gonna buy it. I think we've now built a direct model that can grow faster. We still have some work to do, we still need to do some work to make that more effective. Then the third is in the independent agent channel. We bought Encompass' business in 1989.
So I've been there a long time because when we bought it, we didn't pay much for it. That was the good news. Even better news, we made a bunch of money upfront to really pay down, so we had no cash into it. We didn't really make any money. I went to Barry Karfunkel and I had three different runs at it, like three different management teams, and they couldn't get it to grow. Everybody was, "Well, it's because you're Allstate, you know, you know, you have branded agents." I was like, "I don't think that makes any difference at all. We just don't know how to do this." I went to Barry Karfunkel and said, "Look, I have a problem.
I should be making a bunch of money in the independent agent channel selling auto and home insurance because we know how to do that. We know how to price it. We know how to resolve the claims. Like, this is not that hard to do for us. The problem is I've never been successful, I either have to sell the business or go at it with another management team." I said, "I've decided to sell the business. I wanna sell it to you because National General's been really good in the independent agent channel. You've consolidated, like, 20 companies in 10 years.
You got some good technology. The only difference is I wanna buy you first. I'm gonna buy you. I'm gonna give you our business, go to town, do whatever you want with it, and get us in the independent agent channel. We'll bring to you auto and homeowners that you cannot sell right now because you don't have the data on it." I think it's slightly different. Those things certainly are there, but I think had we done some of those earlier, maybe we would've grown sooner. I don't know.
As part of this analogy, just to travel further, I mean, the, I remember when Hurricane Sandy hit and people were selling Allstate stock. I said, "I swear to you, I've read it six ways to Sunday. The most amount of money they can lose is $1 billion." Like, because the years previous, people were so fearful. Then, of course-
Yeah.
-it's really a testament to the success of the story that you got the exposures right and you bought the reinsurance correctly. To what extent does the Allstate chassis, is it capable of growing in homeowners? To the extent that the best customers are the bundlers and Allstate customers tend to be very sticky customers over the long term, can Allstate really grow its geographical footprint in a way that doesn't increase the catastrophe profile that you spent 30 years trying to reduce?
Short answer would be yes. I think homeowners is a growth business. Everyone looks at it and like, they get scared by the catastrophe stuff. We do have a lot of reinsurance in place. Yes, we might take a big hit someday, but, like, we know the size and the probability of our risks to the extent you can know those. But I think it's a growth business. One, homes are getting more expensive, and two, the weather's changed. With more severe weather, there's more catastrophes, more insurance needed, and so you can charge more. I think there- We grew the homeowners business 1.4% in units last year. I think, though, I think we can grow in the Allstate agent channel.
I think we should be able to then be able to grow. The next place that would be the easiest will be the independent agent channel. There's plenty of places we can grow in independent agents in the middle part of the country that aren't Florida or California. I think we can grow in that space. And then-
Although I would say that I mentioned Peoria, Illinois, that Allstate already has a lot of customers, would be my guess.
There's a bunch of independent agents we don't. Like, independent agents sell half the business in homeowners, we should be able to capture some of that. There's nobody really that good in that space. I mean, Travelers is good in homeowners. If you look at Progressive, like, you know, they've still got some work to do. I think there's space to grow there. I also think in the direct space, very few people sell homeowners. I'm like, that doesn't make any sense to me. Like, people buy houses on the internet, right?
They buy cars on the internet. There's really no reason why they shouldn't buy homeowners insurance on the internet. Right now, very few people buy homeowners insurance on the internet. We should be able to- That gives you the ability to really target. You know, you were talking about getting your aggregates right and your individual stuff. With direct, boy, you can zoom right into a zip code.
I wanna leave the opportunity if someone wants to ask a question. We have plenty of questions. If they raise a hand, we got someone who definitely wants to ask a question there.
Just to build on Josh's question in terms of wanting to take market share and maintain or improve your ROE and get the multiple of the stock up, when you look at your four points of your action plan in terms of improving profitability, one of the four components of that is underwriting actions. You're saying, like, we're not making enough money in 37 states. The way I interpret that is, like, no amount of price can, like, make up for that, you know, those underwriting decisions.
Like, you've made some underwriting mistakes in certain classes or certain states, and you need to adjust those. That gets back to that question about, like, confidence in your ability to grow. Like, there's another example of something that, when you're trying to grow, now you're having to make this, like, massive adjustment and retrench to improve profitability. How should we evaluate, like, that third component, and how should that influence our level of confidence in your ability to grow profitably over time where? Where you would get a higher multiple.
Yeah. I understand the question. First I'd break it into two components. The first bullet, raising auto profitability, is likely to negatively impact units. Like, I don't want you to walk away and think that we're gonna increase units. We look at market share as units rather than premiums, 'cause I think it's just a cleaner way to look at it. I think it's really two parts there. It's get auto insurance approved, units might go down. If you look at then Transformative Growth, units will go up, and that's the way we're thinking about it. They're two separate things. The timing of when you go from this one to this one depends on what our competitors do.
If everybody else raises their rates at the same time, we should move into the second one faster. If people wait, we'll move into the second phase later. They're not gonna lose money forever. Like, I see their numbers. These are smart companies. Even State Farm that's got, you know, a ton of capital isn't gonna keep losing money. They're a smart company. The underwriting actions, you have to think with those are really temporary actions. That's not because we made underwriting mistakes. It's we don't think we have the right price today to take on those customers. Let's bundle it all together. Let's say you have 100 possible people you would normally write, and your price was $100.
You think, "You know, I'd really like my price to be $110." You don't wanna take 100 people in at $100 when you're gonna raise your price by 10% like two months later. Once you've raised your price, you take the underwriting restrictions off because you have the right price. Underwriting restrictions for us are not used because we think the overall aggregate price is wrong or the price for that risk segment is wrong, but then we're gonna get that right. When we get it right, we take the underwriting restrictions off and growth comes up. An example would be in places like California, where we need more rate.
We've shut down, you have to give us half the money up front, and, or else we won't sell you. That means fewer people come to you because a bunch of people don't have half the money. We're like, "Okay," but that's when we get our price right, be happy to sell it with one month down. It just is a way of restricting the volume, which will have the impact you talked about. Like, I think growth in units are likely to go down in auto insurance in 2023, but we're okay with that, to Josh's earlier point, because, you know, most of our shareholder value is created through ROE, not growth at this point. We get to the Transformative Growth, and that should put a higher multiple on it.
I can tell you, and you probably know this yourself, there are a lot of investors who are interested in buying Allstate stock. They wanna know what the exit loss ratios are for 2022, particularly in the auto business. After six quarters of reserve charges, they wanna know the coast is clear, that they can. You tell people what the rate everyone's getting. They can make their own assumptions about what your growth is going to be. If they're underconfident in the actual margins that have exited 2022, it's hard for them to model the future. How do you tell investors to be confident that the Q4 was a quarter with a high degree of confidence about where Allstate's auto margins are currently?
Yeah, it's a fair question. Obviously, when you take a $1.7 billion of charges in a year from prior years, people are like, "Okay," like, "I thought, we thought you knew how to estimate before." Let me just start with, like, every time I sign that financial statement, we think they're right. We've got a really comprehensive process between our actuaries, reserving actuaries. We use two outside firms. We use our auditors, and we use KPMG, and they all coalesce and get their numbers. We got lots of eyes on it.
You say, "Well, then how did this happen?" 'Cause Jess and I have asked this question like, okay, you know, you take an $875 million charge in the Q3 and you didn't have it in the Q2, you're like, "Okay, what happened in the last 90 days," right? They've all said the same thing, which is that when the underlying statistics that you use to evaluate to estimate your reserves change, the methods you use give you much different outcomes as those numbers change. Let's take accident frequency, right? 2019 goes through the floor in 2020, starts to create in 2021, goes up again in 2022. How do you estimate using that data pattern, how many claims you have that you don't know yet? It's called incurred but not reported.
It's the official name for it. When you're looking at that trend, you're like, well, do you include 2020 in the numbers or not? Or do you go back to 2015 and use that as a num? The same thing is true with severity in auto. Like, take used car prices, take parts prices, take bodily injury, take, the- You know, what happened since the pandemic is people have been getting in more severe accidents. Like, they just, they're driving. We do this 'cause we track 26 million cars every 30 seconds. People are driving faster, and they're smashing their cars more.
As a result of that, more people get hurt. And they have more severe injuries. What year do you use to estimate how severe the injuries are? When we've asked them, they're all like, "Look, we would have made the exact same calls you made in each quarter you made it." We feel like this is a good one. Hopefully, the statistics, we've started to weight more recent statistics more, versus older statistics, which should make this more responsive. Every time we do it, we think it's right. Like, nobody fools around with reserves in the insurance space, or no public company does anyway.
Well, you know, the transparency on the rate that you're asking for is quite robust, and you have taken a lot of rate. Now you're weighting your experience towards the most recent periods of time, which there may be a reversion to the mean. How do you brace for the possibility that you might take too much rate and therefore have switched from being too cheap to being uncompetitive?
Yeah.
-in a very short period of time?
It'd be. In the short term, it would be a high-class problem. That happened to us. It's a good question because it happened in 2015 and 2016. In 2015, frequency went way up. We didn't know why. We started jamming rate through, and as other people then figured out it was coming through, so they started raising rate. By the time we got to 2017, we were making our margins were lower than we thought they needed to be for growth. I would say what'll happen this time is, if we overshoot, and I don't think we are, like, we got New York, New Jersey, California, there's no way we're overshooting in those places.
We need, like, double-digit rate increases in those three states, and that's a big portion of our underwriting loss. I don't think we'll overshoot there. Many of the other states, while it doesn't show up in the investor supplement you're talking about in terms of below, we're not badly priced in a bunch of these other states in terms of where costs are today. We will still increase costs going forward because we think loss costs are involved. If they don't, what we will do is turn back on some of the temporary expense reductions we made, like advertising. We've cut our advertising because there's no sense growing if we're gonna raise them. No sense going to find a new customer, getting them to look at your advertisement, and then raising the rates by 15% the first time they get their bill.
We've cut average. The first thing we'll do is advertise, put that money in advertising, and the first place we'll grow is the direct business. We're really working hard on the direct business. I would call this the pause that refreshes. The business grew pretty rapidly. I still don't think its close rates are good enough. I don't think its retention rates are good enough. We're working hard now so that when we get to this inflection point, we can hit the gas pedal relatively quickly with the direct business to grow.
In those three states, how long do you think it will take the regulators to recognize the rate need that you think is required?
You know, I wish I could say it was like tomorrow. I would tell you that we're in active discussions with all of them. You've seen some California has started to open it up a little bit. So we took the tack in California. In California, if you file anything over 7% or over, you get a consumer advocate who comes in and looks at your review, and that stretches out your time about a year. If you're at 6.9 and the department approves it goes right through, and you don't wait a year. So we did a 6.9, got $130 million a year increase from that. We filed an immediate 6.9 as soon as that one got in, and we'll file another 6.9 on that.
That's our strategy in California, multiple 6. 9s. If for some reason they tell us, "Hey, come on in, we'll do higher." Like, we need the rate, we will go there. New York is a little different. We've been in negotiations. We got some increase in December. It's not what we need. New Jersey's in the same camp. I would just say we're all out. If it means we don't write any new business in those places, Mario and I have. Mario runs our profit liability business. I said, you know, the good news about keep this up in some of these states, you'll get to know every new customer personally 'cause there won't be any. You know, we get paid to give our customers the right price. We don't get paid to give them a price where our shareholders lose money. That's our approach.
Well, we're out of time. I wanna thank Tom, I wanna thank Jess, I wanna thank Mark. I hope you guys have a very full schedule. It's obviously you can tell a very compelling story that people are very interested in.
Well, thank you for your insights. You know us well, thank you.
Everest Re is coming up next for people in the insurance track. Thank you.