Moving on to the next presenter, we are very pleased to have Tom Wilson, Chairman and CEO of Allstate, with us today. Tom has been with Allstate for over 20 years. I actually remember when you joined the company from Sears, right? That's how old I am. I remember that. He's been CEO since 2007. Under Tom's leadership, Allstate has emerged as a leading innovator in the personalized industry, and the company continues to evolve in reaction to changing consumer appetites. The company recently announced a Transformative Growth plan, which hopefully we can hear more about, to drive continued growth and improvements. Tom has been a regular presenter here. We always look forward to his comments, and we always learn something. Tom?
Thank you, Jay. Good morning, everybody. Thanks for investing time to learn more about Allstate. Before we begin, let me give you our surgeon general warning, which just says that I'll be making some forward-looking statements. Some of them are GAAP, some of them non-GAAP, you just need to consider in the context of all the information we give you. Then, of course, if you wanted to go on our website, there's plenty of additional information there. As you know, Allstate strategy, we have two components of our strategy, increase personal property liability market share, expand into other protection businesses. If you start with the upper oval, we've been a leader in creating differentiated personal insurance products with features like Declining Deductibles and New Car Replacement. We use sophisticated pricing, have strong claims expertise, are building an integrated digital enterprise to lower our costs.
We're also diversifying these businesses by going into other protection products, which are in the bottom oval. There we leverage the Allstate brand, our customer base, our capabilities to drive growth in those businesses. We offer customers a circle of protection. That's a wide range of things from Allstate Life. We do workplace benefits. We have over four and a half million people we do voluntary benefits with. We have commercial insurance, we have roadside car warranties, Allstate Protection Plans, and Allstate Identity Protection. This strategy is designed to create shareholder value through customer satisfaction, unit growth, and attractive returns on capital. It also ensures we have a sustainable, profitable business and a diversified business platform. Let's discuss the top oval first on increasing market share and personal property liability and the components that will accelerate growth in that business.
Our strategy starts with the customer, then uses people and technology to deliver a differentiated customer experience. We'll execute this plan through our Transformative Growth plan, which Jay just mentioned, which has three components to it: expand customer access, enhance the customer value proposition, investing in technology and marketing. This is a multi-year effort, it builds on our strengths and reflects our current market conditions. We obviously have a number of significant strengths in the property liability business. We have a broad distribution platform from Allstate agents to Esurance direct capabilities to Encompass in the independent agent space. We're quite good at claims. We're excellent at pricing. As a result of those, we're growing. GEICO and Progressive are growing faster than us because they have massive advertising spending and lower cost structures.
Our plan also recognizes that the customer needs are changing due to increased connectivity and advanced analytics. Our leading position in telematics in using digital auto collision estimating, we call it QuickFoto Claim, are two examples of how we're embracing those changes. At the same time, a majority of customers prefer an insurance agent when purchasing a policy, but are comfortable with self-service for routine transactions. We're increasing our mobile application capabilities and building lower cost, centralized, integrated service capabilities. Let's spend a few minutes on each of these three components. Expanded customer access will be provided by utilizing Esurance's direct capabilities to sell Allstate-branded products. Esurance has really strong direct capabilities. It's more than doubled in size since we acquired it a little over 8 years ago. As a result, we can further leverage those capabilities by selling Allstate-branded products directly to customers.
As part of this effort, consumers will be able to choose their service level, either with an agent or self-serve, and their price will reflect the cost of that method they choose. Consequently, we'll be able to phase out the Esurance brand later this year. We're also going to transform the Allstate agency distribution to increase effectiveness and efficiency. While many customers want an agent, and they want their help, they want increased connectivity, and they want to do it more efficiently. We're going to enhance the customer value proposition by improving insurance affordability by reducing costs. That will enable us to be more competitive on price without intentionally giving up margins. At the same time, we need to launch new products and leverage our innovation capabilities. We need products with simpler features.
We are strong in rewards, we want to be more rewarding and more connected. The third component is to invest in technology and marketing. The technology stack will be redesigned with a focus on adaptability and speed. What we'll do is you create microservices that enable us to put those together so we can leverage them across the enterprise and have basically one operating system. As we reposition the Allstate brand to account for both agents and going direct, we're going to leverage things like the high trust levels we have and our rewarding engagement, but we also need to deploy more advertising to compete with GEICO and Progressive. We'll take the money we spent on Esurance, and we'll shift that to the Allstate brand, which will help drive more growth.
It's a comprehensive plan, and it's going to make us a stronger competitor in the personal property liability business. Let's focus on the bottom oval at the same. We're continuing to expand into other protection products by leveraging our enterprise capabilities and the Allstate brand through a wide variety of distribution channels. These businesses are comprised of a number of innovative growth platforms, includes product protection plans, voluntary workplace benefits, auto warranties, life insurance, identity protection, roadside services. We have agreements with shared economy companies. We have Arity, our telematics company, and we've started to build a car-sharing platform. We distribute those products, of course, through the Allstate agents, but we sell them directly. We sell them through workplace brokers. We sell them through major retailers like Walmart, Costco, and Target. We sell them through car dealers, and we sell through telecom providers.
These businesses have substantially expanded our customer relationships with over 112 million policies in force through the end of 2019, which is 38% growth over the prior year. They generated $4.9 billion of premium, and adjusted net income was $428 million last year. The size and importance of our property liability business results in some investors overlooking the value created by these protection businesses. These businesses have highly attractive economic prospects and are worth billions of dollars and should be considered when making an investment decision. Allstate Benefits is an industry leader in the growing voluntary benefits work space. Premiums and contract charges have grown for 20 consecutive years and exceeded $1.1 billion in 2019. SquareTrade, which we bought in 2017, we rebranded it Allstate Protection Plans. We acquired it for $1.4 billion for its high growth and return prospects.
Those plans have grown from under 30 million when we bought it to nearly 100 million by the end of 2019. We entered into a new line of business for Allstate Business Insurance in 2018 when we competed for and won a significant insurance contract with a large transportation network company as one way to take advantage of the changes in personal transportation. It was really our operational excellence in claims that was a factor in our success. We've expanded that relationship and entered into contracts with multiple other shared economy companies across the U.S. This space is going to continue to grow since sharing assets requires a different risk-sharing metrics. Business insurance premiums in 2019 exceeded $900 million, with compound annual growth of 36% since we began expanding into the shared economy in 2018.
In 2018, we also purchased InfoArmor, now rebranded Allstate Identity Protection, for $525 million to expand our presence in personal identity protection products and services with a proprietary product offering. As you know, you think about what you're trying to protect, people are very concerned about their identity today, and we think that's a growing area where Allstate's brand will do well. Arity was created by Allstate outside of our insurance operations to be the telematics provider for our auto insurance. Telematics in the auto space enables us to give customers a highly individualized price, which reduces subsidies between risks and improves their driving experience. We now have 2 million active affiliate connections on our telematics-based pricing. Arity is further expanding that. We have relationships with a number of third-party companies. We now have over 20 million active connections. We're collecting information.
We collect over 15 billion miles of driving data per month. We compete with companies like Cambridge Mobile Telematics and Root, which have valuations of over a billion dollars. A billion dollars is worth $3 a share for us. To further take advantage of the changes in personal transportation network, we initiated operations at Avail, which is a car-sharing platform we're creating. It currently operates in 7 major airports across the U.S. These highly attractive businesses and track record of innovation should not be overlooked when valuing Allstate. This two-part strategy of growing personal property liability market share and expanding protection business is working, as Allstate delivered excellent results and achieved all 5 operating priorities in 2019. Revenues were $44.7 billion, net income was $4.7 billion.
Adjusted net income, which excludes capital gains, was $3.5 billion. It was 11% higher than the prior year, reflecting excellent underlying profitability and lower catastrophe losses. Returns were also excellent, with an adjusted net income return on equity of 16.9%. In measuring our performance, we believe ROE is the best measure for a number of reasons. First, it's a broad long-term measure of performance that includes our underlying combined ratio, how we are doing in auto and home insurance. It also includes things like investment income, catastrophes, and our other protection businesses. It factors in capital management. It's more correlated with the stock price. It's a better comparison with our peers. On a long-term basis, our adjusted net income return on equity goal is 14%-17%. That range also aligns with our executive compensation, which you could see if you look at our proxy.
While we're investing in growth and expanding protection businesses, Allstate continues to provide excellent cash returns to shareholders. In 2019, we returned $2.5 billion to common shareholders through a combination of $1.8 billion in share repurchases and $653 million in common stock dividends. We repurchased 16.4 million shares. That's 4.9% of the common outstanding over the last 12 months. Over the last five years, we've repurchased $9.6 billion or 28.7% of common shares outstanding. The $3 billion repurchase program we announced in 2018, we finished in January of this year. The board approved a new $3 billion share repurchase program, which we expect to be completed by the end of 2021. We also reduced the cost of capital by redeeming multiple series of preferred stock and issued them at new rates, which helps us save money. The bottom line is Allstate represents an attractive investment opportunity.
Our strategy is working and resonating with customers. Long-term growth prospects exist in the personal property liability business and our other businesses that leverage our capabilities and brand. We proactively manage our capital and are returning significant amounts of cash to customers. With that, Jay, should we just have questions?
Yeah, sure. Are there any questions back there? We got one over here.
Thank you. What would you say would be the biggest challenges in increasing the direct channel in your personal auto business?
The biggest challenge is in increasing the. Its Transformative Growth plan is designed around that. We have to obviously put the operations together. We sell direct under the Allstate brand today. We just have a number of rules that don't let people go all the way through the system. If you call during business hours, we route you to an agent. We won't do that in the future. We're combining the Esurance operations and the Allstate operations together. There's an operational work. I don't know if it's a huge challenge, but it's work to do, and we need to do it well. The Allstate brand has higher trust levels than Esurance. When you look at Esurance quote-to-close ratio, if we look at the Allstate quote-to-close ratio, it's better.
By putting the Allstate brand on that, we think will increase the number of direct sales we get, even the ones that would come in through Esurance. We'll reshift that advertising so that will work. I think the biggest challenge is, just in general, just in property liability, is we have to get our cost structure down. We need to continue to reduce our costs. We have the available technology, but we need to make sure we embed that in our business processes at the same time. A QuickFoto Claim is an example of that, where we used to have 937 drive-ins. We had people who were driving around from body shop to body shop doing an adjustment of a car. Today you take six pictures, you send it to us. We don't have 937 drive-ins.
We don't have as many people spending time behind a windshield. They sit behind a computer. They do four to five times as many claims per day, and that's faster for the customers. We pay them in seven to 15 hours instead of seven days. It's cheaper for us, and the accuracy is good. Making that change is not easy, right? Suddenly, when you got someone who's driving someplace, and they can actually look at the car and touch and feel it, that's a little different than doing it on a computer. You have to control your severity. Building an integrated digital enterprise is something we've long been at. That's the way we'll lower our costs and become more competitive to compete in that channel.
Tom, good morning. A number of years back, Allstate was ahead of the curve in seeing a higher frequency, and kind of reserved for that before the industry. Is the company seeing anything in terms of bodily injury severity? There were a couple of regional players that had uplift this quarter. Is Allstate, on a national scale, seeing any changes in that specific loss cost?
First, just to set the stage for everybody, in auto insurance, you have the number of accidents and then how much does it cost per accident. When you look at how much it costs per accident, the biggest driver of that is how much it costs to fix a car. That's about 45% of the cost. About 25% of that cost is bodily injury claims, so what you do to other people, what your customers do to other people. We have seen increased inflation in both of those. The first one is, my view is that what the auto manufacturers are doing is having us collect revenue for them because they're selling the car at a low price and charging a lot for the parts. As a result of that, when a car gets in an accident, you're having more throwaway cars.
I'll come to bodily injury in just a second, but here's the way the cars work. If you took a 2013 particular model we looked at, 2018, the difference in price between 2013 and 2018, over a five-year period, the sticker price of the car was up 2% per year. It went from $22,000-$25,000. If you looked at the cost to fix that car, same accident, $8,000-$14,000. What I believe the auto companies are doing is holding down the price of cars to sell those units, what happens is they make a lot more money where there's not as much competition on fixing them. As a result of that, what happens is our cost to fix the cars goes up, we have to charge consumers more for that. That's okay.
We have it baked into our prices, you're seeing increased cost of fixing cars in part because of that. It's also because there's a little more technology in cars. If there's more technology in cars, the car should cost more, too. It's both more sophisticated cars and more Throwaway cars. I don't see that trend changing. I think they like the model they have, I think we should expect to continue to see the property damage cost continue to go up, and we factored that into our pricing. On bodily injury, that's where you hurt other people, your customers hurt other people, and you have to resolve that. We have seen the cost of that go up throughout 2019. It's above inflation at this point. We have it factored into both our reserves, obviously, and our pricing. Some of that, I believe, is social inflation.
Some of it is some things we can do differently in managing our operation. It's a little of both. I can't speak to what happens to everybody else, but it is pretty broad-based at Allstate.
What about frequency, Tom?
It depends whether you want to look at frequency on an annual basis or a daily basis, or over decades. Frequency, of course, was coming down for many years, about 20 years, in part because of third tail lights, anti-drunk driving laws, anti-lock brakes. Frequency came down. Then it leveled off in the beginning of the 2010 decade. In 2015 and 2016, as you point out, it went way up. I don't think anybody still really knows why it went up. It started back down again, and has been down since then. I think if you look at the cars, and what would drive frequency, of course, safer cars reduce frequency, and that's a good thing. We think that will have a benefit to frequency going forward.
There's other things like economic activity, which have the opposite impact on it. The more people driving, the more people going to work, the more accidents there are. I think, though, we try not to predict frequency because you also have weather in there. If it snows at 4:00 P.M., and it's 28 degrees, the traffic conditions are worse than if it snows at 2:00 A.M. It really depends. A lot of it's also weather related. We just price in frequency as it goes.
Tom, I wanted to ask about the agent reaction to two things. One is rebranding Esurance into Allstate. That's one. Secondly, and you could maybe describe it, but the change in your compensation structure to the agents, where you're focusing more on your new business. What are the reactions to both of those changes?
Look, let me set a little context, then I'll go back to the agent reaction. We have slightly less than 11,000 agents who have about 28,000 people working for them in their offices that only work on Allstate stuff every day. That's 39,000 people. That's too many people. We have to figure out how we get more effective. We started on a program to take low-value-added work away from agents, and have them focus on high-value-added work, the things that you would pay them for in terms of their advice, their counsel, as opposed to changing an address or copying their information down onto a computer file.
We started something called Integrated Service, where we're working those 28,000 people that work in those offices do work that is sometimes clerical, sometimes service work, some of it's sales work, and some of it's support work, but we're centralizing that work. Then what we'll do is, and once we centralize it, we'll get rid of it. We'll make it not necessary. That will help us reduce our overall cost, Jay. It will also help reduce our agents' costs. That said, they're a little nervous about it, because they think, well, if you come for them, when will you come for me? The answer is, we're not going to come for you as long as you're doing a great job for your customers, and your customers want to pay you for the value you're giving them.
We've also been working on increasing their value added, so we're making trusted advisors, is the term we were using for a long time, which is to help them do more high-value-added work. At the same time, we looked at how many of them were growing and how many of them were not growing, and we decided to change our compensation for 2020. We increased the amount of compensation you get for growing, and we decreased the amount of compensation you get for just staying the same size. Out of 11,000 people, the ones that are growing really like that. The ones that are not growing don't like it.
Their challenge is they have to change their business model because what our customers are saying is, "I'll pay if you're selling me something, but I'm not going to pay you a lot of money just for cashing my checks." If you look at commissions, our commissions are nine and nine with some bonus on top of that. Customers really don't want to pay 9% to just have you be there. If you call them, you do an insurance review, you talk to them, they're happy to pay you. You have to step up and do that. What we're trying to do is get them moving along that path, starting with that compensation. On the Esurance brand and the Allstate brand, the reaction's been okay. It could have been uglier. Again, there's shades of gray in all of those.
Some people think it's a great idea because we're now going to spend hundreds of millions of dollars more advertising the Allstate brand, and at the same time, they have higher new business commissions, that's a really good win for them. More people are going to call me, you're going to get your price more competitive, and that's good. To the extent we are offering customers the choice of what. You get what you pay for at Allstate. If you want an agent, you pay for an agent. You don't want an agent, you don't pay for an agent. That's pretty simple. That makes some people nervous, and they would rather not To confuse customers, their view or my view, given that choice, we're going to do what the customers want. I would say, Jay, it's manageable.
There'll be some of those agencies or those agents who don't choose to move into the future with us. Our goal is if customers want it, we just need to do it at the price they're willing to pay.
On the advertising, you talked about shifting more to the Allstate brand, you're dropping the Esurance brand. In addition, will you be raising your overall ad spend as well to drive growth?
Yes. We previously spent many hundreds of millions of dollars, not quite $1 billion, but a lot on the Allstate brand. We spent hundreds of millions of dollars on Esurance. We're going to combine those. At the same time, we're going to reposition the Allstate brand. The Allstate brand is known as trusted, known for agents, Esurance, modern world, fast, efficient, relatively cheap. What we need to do is take the best of both of those. We're working right now on relaunching the Allstate brand. The timing of the Esurance brand and moving away from it is related to two things. One, when do we get the direct capabilities all together? Secondly, when do we have the brand repositioned at a place where we feel it will drive as many quotes in on the direct space as Esurance does now.
We expect to do more advertising, and we'll do it at all points in the funnel. Everything from reposition the brand, some nice TV ads, to what do you do with social media in driving the actual quotes.
You're not going to find some mascot animal, are you? Like an emu or
Well, right now, I like to say we have three, maybe four spokespeople. We have Dennis Haysbert, we have Dean Winters, Mayhem, we have Dennis Quaid for Esurance, and Tina Fey has recently joined Mayhem, if you've seen her.
Yeah, I looked it up.
We have to figure out how we best use the assets we have. We haven't decided yet.
Okay. Ad spending goes up. You'll be obviously working to bring your expenses down.
Yep.
Hopefully, that drives the top line. Net-net, would you expect the expense ratio to go down or stay flat over the next several years?
Expect it to go down. If we want to improve the affordability of our auto insurance, something we need to do for our customers, something we need to do to grow more units. I want to do that, though, by not reducing margins, at least intentionally reducing margins. We're going to do that by taking expenses down. You'll see a shift in the drivers of premium growth. If you look today or last year in property liability, it was 1.3% in units and then about three, four and change on average price. That shift will change. We'll get more units, less average price increase, which will make us more competitive as our competitors keep raising their price. We're not going to go into this with a strategy of cutting our prices so we can grow.
I like to say anybody can give it away in insurance. The trick is making money while you do it.
With the lower expense ratio, maybe the loss ratio goes up a bit, net-net the margins, the target would be at least keep them where they are, if not improve them.
The objective is to stay where we're at, yeah. We ran a 92 combined ratio last year, I don't know that we need to improve from there, yes.
One of the brand names that you put out that we haven't seen, it's relatively new for the company, is Avail. Could you talk more about that? As you answer the question, how do you make money at that business?
Well, let me tell you what Avail is. Let me tell you why we're trying to do it. I don't have an answer to your last question. Avail is a car-sharing platform. Imagine you're going on a week-long trip. You drive to the airport, you park your car, you pay to park your car, and you come back a week later and you pay, and you pick your car up. With Avail, you drive to the airport, you give us your car, we rent your car out for you while you're gone, and then you get that income if it gets rented out. If it doesn't get rented out, you get cheaper parking, and we wash and clean your car for you in the meantime. People think of it as Airbnb for your car.
The reason we're doing that is if you go all the way up to personal transportation industry, it's horribly inefficient. We have $4 trillion tied up in hardware, $2 trillion a year in annual cost to keep those cars and trucks going, another $1 trillion of indirect costs, capacity utilization of 3%-4%. At peak hours, it's 33%. A 20% savings in that cost structure is worth $3,000 per household per year when you have a $62,000 a year average income. I'm like, people will fall out of love with their cars for a 5% increase in their income levels. We're going to work on how do we do that. That was the concept. We said, "Well, why would Allstate do it? Why not some venture group out in Palo Alto?" We said, well, first, we happen to insure relationships with people who own 22 million cars.
We know them. They trust us. Insurance is a key part of that. The value proposition then becomes something like, what happens if you call us and you say, "Look, we can sell you normal insurance that everybody else has." We can sell you telematics insurance, where we use your phone and we give you a specific price for you. If you want, we can put this little device in your car, and just slap it onto your dashboard. If you want, we can rent your car out for you. It won't just be at airports, we think in the end event. We're starting in airports because that's a good place. You can rent money out. Suddenly you're less worried about what you're paying for me insurance because I'm now helping you monetize an asset that you're not using.
If you live in the city, in N.Y., and you live in an apartment building, why should everybody in the building pay $200 or $300 a month for parking? Why don't you share it? You can use your car, you can use my car. We let you figure out how to do it, we have a community-based offering as well. What that does is it really is wrapping our arms around the customer. We think we'll be able to sell them insurance. We'll be able to sell them insurance when someone else is driving their car, and we'll be able to help make money.
By the way, we buy over a quarter billion dollars of rental cars a year for our customers, wouldn't it be nice if we could shift some of that money to our customers, as opposed to the big rental car companies? The challenge for us in making money, all the research shows we can make money at it. I think the biggest challenge is an operational one. You're moving cars around, people around, getting them clean. People spilling Diet Cokes in the front seats. Leaving something in the back seat, getting it back. Our challenge, Jay, is an operational one. We have a great team working on it. We've been at it for a couple of years. We haven't really talked much about it. One, because we didn't want to let everybody else know we were doing it. Secondly, it wasn't really using up that much money.
We're starting to put some real dollars into it now, I want people to be aware that we're using shareholder capital to try to innovate in this space to expand our customer relationships.
You can actually go to the Hartsdale train station. My car's there. Someone can use it. It's there all day.
Yeah, exactly. That's a perfect example. Say you have a bunch of kids, but you don't really want the look and feel of a minivan, and some people don't, but you need to use it sometimes when it's your turn to drive to soccer. Like maybe you could do it in your neighborhood. We think there's lots of ways people can share cars. It just is about trust and making sure you're protected, and you get your car back the way it was.
My last question is, we got a couple of minutes left. With some of the newer products, Allstate Protection Plans, Allstate Identity Protection, obviously the growth has been very good. Can you talk about the underwriting results that you've been able to produce relative to what you had expected?
Yeah. Let me just do them in pieces, right? First, the way we manage our business is everybody gets an economic capital a month number, which we're very specific about, and you got to make money on that. You might not have to make money from the financial books for that year if you can prove to us that the amount of money you make on the cohort of the business you wrote that year is profitable. We've done that with Esurance for a long time. It's now twice its size. We said, as long as what you wrote, you can prove to us makes money economically. That's been true with Allstate Protection Plans. Allstate Protection Plans, when we bought it, was losing, I don't know, Mark, I think it was losing like $30 million a year.
I think it made $60 million last year. Its revenues are now up to $800 million. It's headed north from there the way the accounting works. Allstate Protection Plans, which we paid $1 billion for, was profitable last year and its profit will go up. Allstate Identity Protection is in that let's invest in it stance. I think we lost $25 million on it last year, and we're okay with that because we think people want their identities protected. We have a better model than LifeLock. LifeLock and our model initially was basically, if you get hacked, we'll help you. It's good. You want help, and people are willing to pay us about $10 a month to do that.
We sell through the work site as opposed to doing what LifeLock does, which is a magazine model where you advertise a lot and hope to retain them. We sell through the work site, low cost distribution tied together with our work site business. We want to expand that though, and we have a product we just launched called Digital Footprint, which will help you figure out what your digital footprint is. If I asked you how many people were tracking you, the average person would say about 50. We've got the number way over 150. You use our app, and it'll tell you who's tracking you. It'll help you delete them. It'll give you a rating on their privacy scores. It really helps you manage your digital life.
What we want to do is help people manage their digital profile, just like we're helping people manage their driving with telematics. We're trying to swim upstream with our customers and not just be there when it's broke. We'll fix it. We need to do that, and we get paid to do that, but we think we can add more value by helping people manage their lives.
Got it. Got zero on the clock.
Okay.
Perfect timing, Tom. Thank you very much.
Thank you very much.