Allstate Corp. says it has entered into an agreement to buy online auto insurer Esurance and independent insurance agency Answer Financial from White Mountains Insurance Group Ltd. for about $1 billion.
"This is a significant acquisition for Allstate, not in terms of any immediate market-share growth, but because it will—in time—enhance Allstate's ability to support multiple distribution channels and offer an independent auto-quote service to better compete with Progressive and GEICO," says Stephen Applebaum, a senior P&C industry analyst for Aite Group.
Allstate Corp. says the deal will help it expand its ability to "serve customers that are more self-directed but still prefer a branded product."
During a conference call Allstate CEO Thomas J. Wilson said Allstate will continue to utilize the Esurance and Answer Financial brands and they will be run as independent operations.
Esurance will continue to spend advertising dollars since that is how customers are acquired, Wilson adds.
Hamilton, Bermuda-based White Mountains CEO Raymond Barrette calls the deal a "win-win transaction."
"Allstate has been gradually losing auto-insurance market share over the past few years and now holds about a 10.5 percent share of the auto-insurance market, with about 12 million policyholders and 18 million vehicles. Esurance holds under a 0.2 percent share," says Applebaum.
With this purchase, aimed at the direct market, Allstate agents are "feeling a little apprehensive," says Jim Fish, executive director of the National Association of Professional Allstate Agents.
"The agency force who sells and services policies for Allstate…basically they are competing with their own company," he adds. The insurer has direct-market channels but has had trouble expanding that online presence until recently, he says.
Wilson says the move was made for customers, not agents.
"The right thing to do for customers is to give them what they want," he notes. Business decisions are made based on what the customer wants, "not what people inside the house wants."
Joseph P. Lacher Jr., president of Allstate Protection, said the transaction would enhance and solidify agents' business.
Some questions remain and may not be answered, Fish says, until the deal is closed. For instance, it is not known whether Allstate agents will get a commission for servicing Esurance business, he says. Furthermore, Fish adds, there is speculation that Allstate will soon introduce variable commissions, which may force some agents to sell their business or look to merge with another.
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