The Allstate Corporation (ALL) Earnings Call Transcript & Summary

Good morning. I'm Tracy Benguigui, Insurance Analyst at Barclays, and I'm pleased to host a fireside session with Tom Wilson, CEO of Allstate. In terms of format, Tom will be going through a few prepared remarks and a slide deck. But we are going to take some time to answer some questions from the audience. I also have some prepared questions. With that, we have a lot to cover. So I will kick it over to Tom for his remarks.

Well, good morning. Thank you, Tracy. Thanks to Barclays for giving us an opportunity to tell Allstate's story. Why don't we start on Slide 1, which just says to remind you that there's our surgeon's general warning, I'm going to be making some forward-looking statements and talk about non-GAAP measures. And what we asked is you just consider this in the context of everything we give you in the 10-K, our supplement, our 10-Qs we filed. And if you want any other information, we got a lot of information on our website, which is allstateinvestors.com. So let's begin on Slide 2. So as an investor in Allstate, you get a company that focuses on execution, innovation and sustainable value creation. I've broken those out on the left-hand side here. And what I'd like to do is go through those in terms of long-term results that we'll come back into how we do in this year. So when you just look in total, we have over 180 million policies. And of course, for protection solutions, everything from auto and home, which, of course, you know us well for cell phones, computers, alliance, appliances, identities. Of those, almost 38 million are for personal property liability insurance. Now the broad 180 million is sold through a wide range of distribution. Of course, everybody knows Allstate agents. You've seen them in your local community. We also sell through independent insurance agents. We sell at the workplace through benefits enrollment. We sell over the web. We sell in call centers. We sell to car dealers. We sell through large retailers like Walmart, Costco and Home Depot. And so we have a very broad way, and we want to be ubiquitous when you think of Allstate, you think of protection where everywhere you want to be. And if you look at execution of financial results, it highlights our ability to execute. We have industry-leading insurance margins and an average return on equity over the last 5 years of 15.6%. Our shareholders have benefited from that with a 14.9% total shareholder return over the last 5 years. And of course, innovation is really important to execution, particularly in an economy that's moving as quickly as it is today. In 2019, we initiated what we call our transformative growth strategy, which is, first and foremost, increase personal property-liability market share, and we believe that will create additional shareholder value. First, through just the absolute growth. Second, we think it will lead to multiple expansion. We've also been aggressively investing in the power of telematics. We've been a leading -- also been a leading corporate citizen in -- particularly in the areas of climate change privacy and equity. Those things -- we picked those things because they are related to increasing shareholder value. Also, of course, you have good sustainable value creation requires good capital management. We're in the top 15% -- sorry -- it's slightly low according to the progress. So we're in the top 15% of the S&P 500 in cash returns to shareholders. That's both dividends, and then we repurchased 25% and 50% of our outstanding shares over the last 5 and 10 years. And I think this is a valuation metric that gets overlooked because if you're an investor, of course, we're a large investor as well, you want some money right now and you want some money in the terminal value, and we've generated good returns on both of those. At the same time, we've been able to use success -- acquisitions successfully to increase our growth and then we also get a good mark on corporate governance. So with long-term great track record on execution, innovation and sustainable value creation. Let's go to Slide 3 and talk about our strategy and then how we're doing this year. So our strategy has 2 components to it, which are shown in the ovals on the left, increased personal property liability in market share and then expand protection solutions. The right-hand side of the slide highlights our progress through the first half of the year, so I'm getting a little shorter here. So our property liability market share is up by about 1 percentage point through the acquisition of National General. And we'll talk about that. That was an economic trade. It's a good real growth and should be counted in our valuation of growth. Allstate protection plans continues to grow rapidly. We've generated excellent financial results with revenues increasing 23.8% compared to the prior year adjusted net income of $3 billion and a return on equity of 23.8% for the last 12 months. And that includes a really good 2020, which of course we benefited from the impact of the pandemic on auto insurance margins. And I'll talk some more about that in a few minutes. Shareholders benefited from our 50% increase in the quarterly common dividend and the Board approved a new $5 billion common share repurchase program, which is the largest one we've ever done. That represents about 13% of our current market capitalization that we expect to complete it by -- in the first quarter of 2023. In addition to operating execution, we are innovating to drive sustainable value creation, transformative growth plan that created digital insurance companies making good progress. We are among the leaders in telematics with Drivewise in the industry's largest pay-per-mile product, as we sign up you base a little bit of money in -- for the policy to start and then you pay for a mile. We're an industry leader in that, and it's really worked well in the pandemic as people drive less. We also enhanced our position in independent agency channel, and we're using National General to consolidate and improve our business model. We executed agreements to sell Allstate Life Insurance Company and Allstate Life Insurance Company of New York to redeploy capital out of the lower growth and lower return businesses in life annuities, and it also reduces our interest rate exposures. Increasing market share, maintaining attractive returns and expanding protection through transformation and these acquisitions and divestitures. We made good progress in creating value this year. Let's move to Slide 4. And I want to talk -- spend a little bit of time on transform of growth because it's really important to our value proposition here. So it's a multiyear initiative, and it's designed to increase personal property-liability market share by building a low-cost digital insurer with broad distribution. And there's 4 components to expand customer access; improve customer value; increasing the sophistication; and investment in customer acquisition and deploying new technology ecosystems. So we made great progress on all of these, and let me walk through some of those. So expanding customer access is a multifaceted plan to transform our distribution so we can achieve leading positions in all 3 of the primary ways in which personal property-liabilities shared with the local agents, whether they be Allstate or independent agents and direct in over the web. One of the things we're doing is transitioning our existing Allstate agents to higher growth and lower cost models. Second thing we do is expanding our Allstate brand direct sales. Third is enhancing our presence in independent agent channel through National channel. Improving customer value incorporates an improved price-competitive position while maintaining attractive returns, and we're doing that by lowering our cost structures. It also involves redesigning our products and leveraging the industry telematics position we have in things like Drivewise and Milewise. We're -- at the same time, we're increasing our investment in marketing, while advancing the sophistication of customer acquisition relative to lifetime value. We've also designed and are building a new technology architecture and we've coded a lot of the applications at this point. If you turn to Slide 5, it shows how the components of transformative growth really work together to be a flywheel that creates sustainable growth. So expense reductions in the upper right there enable us to offer more competitive auto and home insurance, while still earning attractive returns. When you enhancing and expanding our distribution puts us in a position to take advantage of more affordable pricing, increasing our analytical sophistication of marketing and customer acquisition and then gives us the opportunity to provide more sales opportunities to that expanded and enhanced distribution. The new customer experience in product management, ecosystems, it's technology ecosystem we're building will both lower our costs and enable us to create simple and connected products to enable us to further differentiate ourselves from the competition, which then creates a flywheel and that lowers our cost and more expense reductions, and we just move around the circle which is about driving growth, focusing first on price and then on expanding distribution, being more efficient with the way we use our money and leveraging new technology platforms. Let's jump into our progress of in reducing costs over the last 3 years. That's on Slide 6. So underwriting expenses are shown in the lower left graph. And you can see after excluding the increased investment in advertising and onetime charges, the blue -- dark blue bar in the bottom, the underwriting expenses declined from 22.3% to 19.9% in the first half of the year. And that represents an annual financial reduction in cost of about $1 billion. Marketing, which is shown in the light blue right above it is increased from 2.5% to 3.1% of premiums. Claim expenses are another way to reduce your cost and your expense levels for cost saving given more affordable prices. And we've done a lot there as well by QuickFoto Claim, Virtual Assist, aerial imagery, which not only reduce our cost, improves the customer experience. As you can see from the chart on the lower right, our property-liability claim expense ratio, this excludes catastrophes. Declined from 6.9% of premiums to 5.6% in the first half of this year, and that represents an annual savings of about $0.5 billion. In these improvements, they don't show up in the expense ratio. The way we do our expenses, that shows up in the loss costs. But -- so it's not in GAAP accounting measure. But the focus on cost is particularly important this year as we faced increasing severity in auto physical damage costs. If we move to Slide 7. I want to discuss our execution ability to manage insurance margins to generate an attractive return on capital and at the same time, be amongst the best in the industry. So if you just go way up, we have a very rigorous process for allocating capital to risks to make sure we generate attractive returns on capital. And we do it by line of business, by geography, by risk best, we slice and dice it every which way to Sunday to make sure we're getting a good return on shareholder capital. The table at the top shows returns that give attractive returns for the auto and homeowner insurance line on a nationwide basis. We do it by state. We do it by catastrophe zone. We do it lots of different ways. This is just in total roll off. And it says that auto insurance, if you're in the mid-90s, that's a pretty attractive return. And let me take you through the math of that. So you hold about $1 of capital for every $3 of premium. So if you're in the mid-90s, let's say that's 95. That's 5% on premiums, and you only have $0.33 of capital per dollar there. So multiply that by 3. You add in some investment income, you take out some taxes, and it's a really good return. In homeowners, this number excludes catastrophes because catastrophe is very volatile. And you do have -- you have to recover the money from the catastrophes and we're very clear about that. And you'll see in a minute, we do recover ours. But this is in the mid-60s because catastrophes are a large part of the loss cost in homeowners insurance. Homeowners insurance is different, though, from auto insurance in 2 ways because of the volatility in those catastrophes, you carry more capital. So therefore, you have to have a lower combined ratio, a higher margin. At the same time, in homeowners, because it's relatively short duration, you don't get a big -- you don't get much investment in income on the home loan line. So you need to be kind of in the mid-60s to get a good return on capital. And so if you look at the table on the top, you can see that we've been in line with those and done very well relative to those levels over a long period of time, whether it's 10 years or it's most recently in this year. You can see 2020 was really good. I mentioned that it was really good, particularly in auto insurance because people quit driving. You can see it's up already in 2020. In the second quarter, it was at 94, and that reflects a return to more normal driving and increased claim severity, which is due to the -- some of it's due to the impact of the pandemic and auto repair costs. And while higher than prior years, 94 is still a really good return on capital. The homeowner insurance combined ratio, also, you can see we've done relatively well. And our comparison to the industry is down below. So if you look on the lower left, auto insurance, Allstate Progressive and GEICO tend to lead the industry. And since 2011, our combined ratio, which is the blue dark blue line at the bottom, has remained favorable to the industry by about 6 points on average. On the lower right, you can see homeowners where we're even better and significantly outperforming the industry and publicly traded peers. Since 2012, that lines generated almost $9 billion of underwriting income, while the rest of the industry generated about a $5 billion underwriting loss over that same period. So the homeowners business averages about $1 billion of underwriting income a year since 2012, which is when we successfully repositioned that business. And that includes the impact of catastrophe losses. Now let's go to Slide 8, which highlights Allstate's successful acquisitions. Over the past 5 years, we've invested $6.2 billion to acquire capabilities to expand our protection offerings to meet customers' evolving protection needs. So in the case of National General, the acquisition expanded our market presence in the $125 billion independent agent channel, which will be leveraged by introducing new middle-market auto and home products. Our planned cost synergies are ahead of forecast and then we recently announced the acquisition of Safe Auto, which is another business we can fold into National General, and cut the cost by doing so. Allstate Protection Plans, we purchased it for $1.4 billion in 2017. It's really been a tremendous success, both strategically and financially, really expanded our consumer protection offerings, it way expanded our distribution to all the major retailers. And it leverages our brand. Now we rebranded it under the Allstate name, which really gives a higher close rate in the retail stores. We got -- we have a 45% compound annual growth in revenue since we bought it. It's now making less than -- the earnings are less now than 1/10 of what we -- or more than -- it's -- the P/E ratio is less than 10 as to what we paid for with that kind of growth business. It's really been spectacular thing, and we're expanding it internationally and expanding its product lines to include appliances with Home Depot and furniture. We're also building our telematics business in Arity. We created Arity outside the insurance companies so we can provide scale telematic solutions for Allstate, but also for other companies. We said we're going to build this for ourselves, and we can't get 100% of the market share. So we might also take these capabilities because somebody is going to serve this market. And we've built a really nice company that's done that. It has a really extensive data collection. We track 27 million connected drivers with pretty good analytics on all that. We track over 100 million in total. We generated over 800 trips per second, and we have over 0.5 trillion miles, which gives us the ability to do a variety of things by telematics as a service, help me figure out how they want to price auto insurance using them, help them figure out how to market to drivers who are the right drivers. And we think long term that the data will also have advantages as we move to more autonomous vehicles. I'll say, Identity Protection, it further diversifies our protection because people want to both not just for the house and car but their identities. We -- it's got an enhanced suite. You can see our policies are about 3x what it was since we bought it. Slide 9 shows how the strategy and execution results in cash flow from operations that consistently exceed the property and casualty, peer average, as you can see from the chart in the bottom left. And those cash flows give us the opportunity to provide value back to shareholders. So if you had purchased Allstate, 5 years ago, bought the whole company, you would have heard a 15.9% internal rate of return over the last 5 years, reflecting both the dividends, the share repurchases and the stock price appreciation. At the same time, we've invested money in expanding through acquisitions. So -- and our internal rate of return is well above the P&C peer average. Slide 10 highlights why Allstate is an attractive opportunities. So I'll close here, and then we'll move to Tracy and your questions. So anything you want on any of the stuff, we would love to answer for you. So what this table shows is financial metrics over the last 5 years compared to the S&P 500. That's the middle compared to our peers and then compared to the S&P 500. And you can see by the 4 measures on the top, operating EPS, operating return on average equity, cash yield and total shareholder return. Allstate is consistently ranked in the top 2 or 3 amongst peers. If you move down 1 row, you can see that if you move down, you can see that our P/E ratio is substantially below those which is probably related to the revenue growth, which is always a little hard to tell and to attribution in the market, which is -- that's one of the reasons we're executing transforming growth, drive absolute growth in earnings and at the same time, get a revaluation on the multiples. So with that, let me go back to Tracy and we'll go wherever you'd like to go.

Excellent. Definitely we have a lot to cover on your businesses, but just to field some audience questions, I guess the most popular one is just to get an early take on Ida and third quarter catastrophe losses for your business?

So Ida was definitely a significant storm. We're out in full force to take care of our customers, and we're doing quite well with that and our service levels are good. We feel good about being there. We gotten favorable reaction from our regulators and what we're doing with alternative living expenses, particularly related to -- relative to some of our competitors. So we feel good about what the promise that we're bringing back to customers, which is when something bad happens, we'll hope we pick up the pieces. As it relates to the financial implications, we -- it's well within the zone of what we're prepared to cover. So you know we have a substantial reinsurance program. It seems likely that this will move into that reinsurance level. We're actually -- but as you know, Tracy, we put out our specific cat numbers month. And so actually, on Thursday, we'll be putting out the new cat members, which will include our first read of Ida, but it's well within any scope of what we would normally expect.

Okay. Great. Allstate's been pretty focused on profitability, but it seems like now there's more attention paid to PIF growth, if I just judging by your proxy statement. Where do you think you could find the earliest growth wins by distribution channel or products. And I'm curious if you're agnostic where growth is coming from, both organic and inorganic?

Well, let me start with the -- first, you're right, absolutely right. We're more focused on growth. We've always been interested in growth, but I would say, Tracy, our prior strategy was customer value-driven, provide really good value, have a competitive price and then you could grow. And that's worked okay, but we haven't really picked up share. So there's -- the difference in growth now is reduce costs, get a more competitive price and then use more digitization to further improve customer value and reduce your cost at the same time. So it's a more comprehensive and more aggressive focus on growth. And as I said, that will do 2 things. One is we just give more customers and we make money off each customer. Secondly, we believe that it will lead to a revaluation of the stock, particularly when you look at us versus any of our peers, not just progressive. But if you look at us versus any other P&C peers, we believe our multiples would be higher and should be higher. The -- as it relates to how we're going to get it, I'm agnostic by channel. Let me start there, and then I'll come back to your question on acquisitions. So -- but we have a variety of things going on. So in the Allstate brand channel, one of the things we said is, okay, if we're going to compete in marketing, it's really become a very aggressive, I don't want to say marketing word, but you got to have hundreds of millions of dollars, billions of dollars really play in that game. So we took our Esurance business, which was a separate brand. We rebranded it under the Allstate name. We took all that marketing money and we put it into Allstate branded marketing, which helps not only the direct business because it's a better brand name. It also helps our agents because we're doing more advertising. And we then have dramatically expanded our direct distribution capabilities, both at the call centers. And we've added a tremendous number of people there. And we've expanded and improved our web presence so that we can close them. At the same time, we went with a lower price for Allstate and branded insurance bought through the direct channel and buy through an agent, you buy over the web or through our call center, it's 7% less than if you buy from an agent. And that's because it costs less and it gets less value, you don't get someone to help you and people pay for what they get and if they're not getting help, they don't want to have to pay for it. So we -- that business has really taken off. We have really high growth rates in that business, and we're feeling very good about this. At the same time, on the existing Allstate agents, when we looked at what customers wanted to pay for, they really want to pay for help and buying the policy. They don't want to pay that much for service. And so we've set about repositioning that business to be more focused on new business sales and less on servers. And so we're aligning compensation, so we increased compensation for new business, but then we're taking compensation down for renewals. So we're transitioning that Allstate Agency to lower cost, higher growth. So as a result of that, we could hiring new agents about 1.5 years ago because we said, what, like if we're going to change the business model, let's not put new people into it. Some of the existing people are really leaning into this growth. So overall volume has stayed relatively constant when you adjust out for the fact that we're not hiring new people. And so you have the direct business growing, the Allstate agent business is flat. But then if you factor in the fact it got a little smaller, we've lost those. So the Allstate business, branded business is not growing as fast at this point in time until we turn the corner when the Allstate agent fee starts to grow along with the direct fees then it should really take off. We're doing something in the Allstate agent channel besides transitioning the existing agents to a new model, which is we have a new call market sales associate model, which is low cost, really has centralized service you don't have to have an office, you don't have to have real estate. It's just a local person selling auto insurance and home insurance. So we have a variety of things to drive that growth. So the Allstate agent -- the Allstate branded channel is growing really rapidly in some portions and then flat in the others. The independent agent channel it's up by 1% this year in terms of total market share in the whole company is up because of independent agents. And some people look at National General, so we way you did an acquisition. So you bought it. I'm like, okay, well, let's just talk about that. So we paid $4 billion. It comes with -- these are root numbers. It comes with a couple of billion dollars of statutory surplus. So you got the cash, right? And then you got these businesses. And so we've got these businesses that generate earnings. We got the statutory capital and we got 1% of market share. I do not believe we could have spent $2 billion in advertising and gotten a 1% increase in market share. And so we think it's really good growth. We think it's growth that should be valued by the marketplace. As we look forward, to the extent we can do that again and with other companies. And we think it's economic, we'll do it. That said, I'm not interested in buying somebody in taking what is a high-return business and putting a lot of goodwill out of it and turning it into a low return business. So in terms of acquisitions versus organic, would prefer to grow organic. That said, there are some acquisitions like SafeAuto, where we're going to buy SafeAuto and basically consolidate it right into the National General platform substantially reduce expenses. And it's more economic to grow that way and going out and paying like book roll commissions and stuff. So looking for a lot of growth in the personal Property-Liability business because of transformative growth on the Allstate Agent channel. And then in the independent agent channel, we're taking -- National General was really a nonstandard high-risk auto insurer, like that was his relations like 42,000, 43,000 independent agents. But mostly, they're known for like high-risk strategy and high-risk driver. We're taking the Allstate Standard Auto and homeowners business, and we're going to roll that out, and we've gotten really great reception from the independent agents. And yes, we would like to have another big carrier. We'd like to have the quality of products and service you provide. And so our challenge there is just starting to roll it out on the technology platform, which will have a little bit done this year, but it's really going to happen, the product expansion in independent agents will happen really in 2022 through and 2023.

Maybe just a quick follow-up on your comments about the compensation plan with your captive agents. Are you still in the thick of some agent disruption? Or past some destructive forces of implementing that plan to date?

I don't know if I think it really is destructive, but certainly, there is a transition in place. And we've laid out their transition for our agents. We've said, look, here's where we're going. You're going to have higher new business commissions, you're going to have lower renewals. Here's what it looks like. Here's how you earn the way to it. We have a very turnout a very sophisticated transition program. We've taken the agents and broken them into 3 categories. There are some who are just charging ahead, growing like crazy. We believe this is a fabulous opportunity to grow their business and they're doing it. They're investing in their business. There are other people who look at it and say, I really am not up for the new business growth. I really don't want to put a bunch of money to grow, and I've been around a long time. And if renewal commissions are going to go down, then I probably should transition to some other place, sell my book of business. And so we're actively working with them. In the middle are a whole bunch of people we want to move into their first category because we believe -- we know that customers -- there are a large group of customers that want a local agent to help them buy insurance, either because they just don't feel like doing it themselves, they're not sure, they like somebody in the local community. And so we want to be there for them. We just want to be there for them at a price that they're willing to pay.

The recent trend has been towards price increases in personal auto insurance, and it seems like Allstate's focused more on margin maintenance than repair as you began your rate decreased actions a bit later than others. Is that the right way to think about it? And I guess I'll also ask how do you feel about the comfort of growing in a rising loss cost trend environment?

Hold on, do you hear the other. Okay. I heard somebody else graduating in New York City. Sorry, I heard some other language. First, -- so as it relates to price changes. I don't know if the -- whoever is controlling, the sound I'm hearing somebody else speaking. Did anybody hear that? Or am I just I'll try to talk over it, but if whoever is controlling sound should sort of mute me if there is a way to remotely mute that person would be helpful. Okay. So first, price changes. We make sure I get back in the right Tracy. It's a little deceiving looking at the percentage changes because you never know where somebody is coming from or going to. So State Farm took a large number of decreases recently last year, but because their absolute price was so much higher than ours. So you have to really look at the absolute price level. And so what we have is we have what we call a competitive price index, where we look at a variety of measures, and we say, okay, how we do it in our competitive price position. And we believe by lowering our costs and the changes we made in pricing in 2021 that we've improved our relative competitive position this year. When -- the proof to that is then we look at of the quotes we do what's our close rate. So obviously, the more you close, probably the better price you have. And because in the end, price tends to be the biggest driver of that difference, not just that I get a good sales pitch. And our close rate is up in a number of areas where our competitive price position increase. So we believe we've improved our competitive price position in 2021, and that's helped us. As we look forward from here, as you point out, people are starting to raise prices, and it all depends where you raise it from, but you are seeing some pressure in auto insurance severity, which appears to be across the whole industry. It's certainly true for us. And so you're seeing people take a number of price actions.

Got it. Maybe we could do a quick round. I had had a number of questions coming through. The first one is how might your growth of your advanced driver assistance systems impact the P&C part of your business and that seeing investors asking how chip shortages may impact P&C as well SquareTrade business?

I was -- let me make sure I get that. The first one, how is -- I'm going to say how does advanced driving sub impact P&C? What was the second part, I didn't understand.

Shortages on both P&C and SquareTrade business.

Yes, I missed that part. Okay. First, as it relates to increasing sophistication of the driving fleet. We think long term, it's going to have an impact on auto insurance. We think there will be fewer accidents, which leads to less demand for insurance. And we think that actually the U.S. fleet should be more -- could have more shared vehicles, higher capacity utilization. So we think that the auto insurance growth will be -- had the headwinds of fewer accidents and probably less hardware on the ground. That said, the cost of those devices, the hardware -- the car costs are going up. So premiums have not gone down as much over the last 5 years as we thought it might. That said, we're positioned for it and said, look, even if that happens, if we're a leader in telematics, we'll pick up share. Like even in a market that's flat, we ought to be able to pick up share real unit growth. At the same time, we said, what we'll do is leverage our position, and that's the bottom oval, right? Like we got relationships with all these people. We've got a great brand name, let's sell them all kinds of other stuff. So even if they have to buy less auto insurance, maybe they want insurance for their cell phone, their computer, their identity protection. So what are all the other things we can leverage and think of them and ourselves not just as an auto insurer, really as a protection solutions company. So we think we're well positioned on both of those as the leader in telematics with transformatives part of it and then expanding our protection solutions. And we've shown successfully the value of the Allstate brand and the extendability of the Allstate brand into other stuff with Allstate protection plan. As it relates to the chip shortages, I'm going to take that up to really say what is the impact of the pandemic on our loss costs, both in auto and home insurance and then generally is corporate expenses. So auto insurance, it's driven up physical damage costs a lot. Used car prices can be up 30%, 40%. The auto manufacturers. They tend to do this when they sell fewer vehicles, they raise their aftermarket parts prices, which then, of course, increases the cost to repair car. And so when you're looking at auto insurance today, you're seeing a pretty substantially high increase in the cost to fix cars called physical damage severity that you're seeing people have to price into our insurance I'd be happy to talk about that. I don't think that's going to go away anytime soon because once it sort of gets embedded into the system, it's hard for auto prices. The auto -- used car prices might come down some, but I don't think they're going to be down by 40% coming up because people just get used to that's what the value of the car is. On homeowners insurance, what you're seeing is as everybody stayed at home more, that picks up their houses more so you had demand for lumber and labor and all kind of stuff. So we are seeing some cost pressure in fixing houses as well. I think that will probably abate that tends to come down in those markets tend to be a little more flexible in terms of pricing up and down. As it relates to overall expenses, I think we're seeing what everybody else is seeing, which is increased turnover and the ability to -- and having to pay higher wages. We're well positioned there, 70% of our workforce outside the United States. We have great relationships with our people. They believe in our company and we've been -- we went to $15 an hour like 4 or 5 years ago, we're at $16 to $18 now. So it's a minimum amount. So I don't see any cost pressure that's going to stop us from that effort of reducing costs that's key to transformative growth. But we are having to pay attention to the increase in severity in auto and home insurance.

Got it. And I think we're just about out of time, but just to take maybe one last question from the audience. It's on Metromile. How much lower is the drive-by-mile policy by average versus regular policy? And how are the profits differ? And I guess my question would be, is it more -- I'm sorry, I meant Milewise, is it meant more as a retention tool or new business?

Milewise is primarily a new business offering right now. We're not going back to all of our existing customers and moving them into Milewise. If they call and they want to move and, of course, we will do that. But it's really mostly focused on new business. It's very attractive to customers because they pay for what they get. And from our standpoint, it shouldn't really have any overall impact on revenues relative to profitability. We tend to price our products to be the same. It's not like we make more on one and less on another. So we like the profitability of it. We particularly like the fact that our customers like it. And to a certain extent, it's just a different pay plan, right? Like you can pay us upfront for 6 months for unlimited miles or you can pay us a less upfront and pay us per mile, so it's like cell phone coverage. Some people want unlimited usage and other people prefer to buy different plans. So it's just a way of adapting the way customers want to pay us, but shouldn't really have any impact on our overall profitability.

Great. Thank you so much for definitely over time here. So I want to thank you again for your time. And with that, this session concludes.

Thank you, Tracy.