NU Online News Service, May 23, 1:16 p.m. EDT
Allstate's recently announced $1 billion acquisition of Esurance is credit-positive for Allstate and gives the insurer a platform to compete in the rapidly growing direct auto-insurance channel, according to Moody's Investors Service.
In its Weekly Credit Outlook, Moody's says, "In recent years…substantial personal-auto market share has been taken by profitable 'direct market' insurers, led by GEICO and Progressive, which bypass insurance agents and their attendant commissions but rely heavily on advertising and place business directly via the phone or Internet."
Moody's says Allstate's Esurance acquisition shows that the company plans to "compete aggressively for a rapidly growing customer segment that is comfortable making insurance decisions without the help of an agent, but wants a branded product."
GEICO, the leading direct auto-insurance writer and the third largest auto-insurance writer overall, holds a 9 percent share of the market. Progressive holds an 8 percent share (which includes both the company's agency and direct channels). Esurance is well behind those companies at 0.5 percent, but Moody's says Allstate's acquisition is "well timed given the small number of available brand-name targets in the direct personal-auto space and the likely substantial cost to building the business organically."
Moody's says Allstate could face challenges over the next 5-10 years managing multiple distribution channels as the direct platform grows to a more prominent position within the company.
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