Allstate unveiled plans to revamp its distribution channels and its business strategy to grow its property and casualty business, but the executive director of the company's agents' association has criticized the plans.
During its Investor Day conference on June 1, executives with Northbrook, Ill.-based Allstate outlined their strategy for growing business by developing a distribution network that covers all the touch points for consumers. The company is also taking steps it believes will improve the performance of its agency system through consolidation and incentivizing agents to expand their business.
Tom Wilson, Allstate's chairman, president and CEO, spoke about how the company "has made good progress" and is responding to the need to improve the company's performance for the future.
Part of that strategy involves the acquisition of Esurance, the online carrier, making Allstate "the only company serving all segments of the customer proposition."
Joe Lacher, president of Allstate Protection, the company's property and casualty business, laid out how the new distribution model will help the company.
On the business side, Allstate has seen the greatest negative impact to its earnings from rate inadequacy on its homeowners insurance business. He says the company plans to increase premiums on homeowners to reflect loss inflation. Along with taking rate, the company will tighten underwriting standards in an effort to avoid unwarranted claims.
The aim, says Lacher, is to achieve a combined ratio in the low 60s, excluding catastrophes, by 2013.
On the auto side, the company is concentrating on claims activity to cut down on losses, primarily concentrating on New York and Florida, which account for 20 percent of the carrier's business, says Lacher.
On the distribution side, Lacher says Allstate's exclusive agents will be compensated differently than in the past in an effort to boost existing customer loyalty and grow revenues. The company's variable compensation to agents will be increased from 10 percent to 25 percent commission, based on improvements in the agency's business, which will mean more cross-selling and building the scale of the firm. However, compensation will be dropped from 10 percent to 8 percent on new business and renewals.
Lacher says there will be more emphasis placed on the consolidation of agencies, based on the feeling that bigger agencies can deliver more services and be there when the customer needs them.
The shift, which Lacher says will involve a two-year transition, will cause some disruption but will strengthen the company in the future, he says.
Encompass, the independent-agency distribution company, has suffered from a five-year decline in business that was "self-inflicted," says Lacher. He notes that Allstate recognizes that it tried to treat Encompass as a direct-writer system and ignored the "unique" environment of the independent-agency system. He says the company is repairing that model but did not provide much in the way of specifics.
While the direct agents and Encompass will provide the services for those looking for an agent, Allstate's acquisition of Esurance and independent-agency Answer Financial will be there for those seeking to make their purchases from the Internet.
Lacher says Esurance will be in a position to drew on the expertise and claims-adjusting capabilities of Allstate, while the online insurer can provide cross-selling and other marketing possibilities.
He says more details about the company's plans will be released after the deal is complete, adding that both Allstate and Esurance are "excited" about the possibilities the transaction brings.
However, Jim Fish, executive director of the National Association of Professional Allstate Agents (NAPAA), says that a lot of Allstate agents "are not happy at all" with the way the company is being run.
"No one at the top of the company understands what it is like to be an agent," says Fish. "It is sad because agents have tried to tell them what is not working, but they are not listening."
Fish says he disagrees with the philosophy that larger is better because it impersonalizes the agent-client relationship.
"It is fine to [consolidate agencies], but you lose some of the homespun advantage" that the small, local agency has developed with its customers," Fish suggests. It will also mean less agency locations for customers to choose from.
Fish says the plan is part of a move NAPAA criticized last year when an internal memo revealed the company planned to eliminate 3,000 or more agents from its books. He says the current call to consolidate agencies is an acceleration of that process.
While executives acknowledged the move would result in some disruption, Fish says it is only producing fear in the ranks of the agents who are afraid they will lose their jobs because they are not in markets where they can reach production goals of $3-$4 million in revenue.
"The smaller agencies are feeling a lot of pressure to get to [the revenues] that [Allstate] wants," says Fish, but the result is that experienced agents are either being terminated because they can't reach the sales goals or the agents give up and sell their business.
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