Ya gotta hand it to Allstate. The "good hands" company has managed to work its way towards the top of the property/casualty insurance pile. The company is the second-largest personal lines insurer in the US, just behind rival State Farm. Its Allstate Protection segment sells auto, homeowners, and other property/casualty insurance products in Canada and the US. Allstate Financial provides life insurance through subsidiaries including Allstate Life and American Heritage Life. It also provides investment products, targeting affluent and middle-income consumers. Allstate Motor Club provides emergency road service.
Allstate's largest property/casualty markets are California, Florida, New York, Pennsylvania, and Texas. The company operates throughout the US and in Canada.
Allstate Protection's property/casualty businesses -- which cover about 16 million households -- account for about 85% of the entire company's total premiums. Most of the segment's sales come from traditional auto and homeowners policies. In addition to traditional property/casualty policies, Allstate sells specialty products including coverage for motorcycle and boat owners, renters and landlords, and mobile home dwellers. It also provides roadside assistance, as well as auto protection and service coverage sold through dealerships. Commercial products are geared towards small business owners.
Subsidiaries Esurance (auto insurance) and Answer Financial (agency sales) operate online and have a combined customer base of close to 840,000 and growing.
All of the company's life insurance, annuities, and banking services operate through Allstate Financial. While these sales account for less than 10% of the company's total revenue, Allstate considers them to be useful for deepening relationships with Allstate Protection customers.
Sales and Marketing
Allstate maintains a network of about 11,000 exclusive agencies which sell its Allstate-branded insurance products. Independent agencies sell the company's Encompass-branded products as well as its Allstate lines. Other products are sold through financial representatives, online, and over the phone.
To better compete with its faster-growing direct-to-consumer competitors Progressive and GEICO, Allstate has been expanding its marketing efforts to reach younger consumers who like to compare and purchase insurance online.
Allstate posted a 2% increase in revenues in 2012 to more than $33 billion due to higher property/casualty premiums earned, mainly in the homeowners and other personal lines businesses, as well as higher investment returns. Allstate has improved revenues over the past few years, primarily due to organic growth.
Severe weather events can take a toll on Allstate's profits. As evidence of the seriousness of the matter, tornados in Alabama and Missouri during 2011 resulted in the company's biggest losses since Hurricane Katrina in 2005. The company was able to reverse its net income results in 2012 by posting a 193% increase to some $2.3 billion due to higher underwriting income and lower catastrophe losses in homeowners insurance and other personal lines.
Allstate is focused on increasing premiums, maintaining profitability in the auto segment, and increasing returns in the homeowners and annuity segments. To grow policy sales, the company is enhancing its independent agency network (especially in targeted geographic areas), sales support organization, and online sales platforms. It is also working to increase cross-sales of voluntary benefit products through its exclusive agents, as well as to form new strategic alliances and develop new product offerings. At the same time, Allstate is working to reduce its operational costs.
To slim down on its less-profitable operations, in 2013 Allstate agreed to sell its Lincoln Benefit Life unit to Resolution Life Holdings for $600 million to reduce its exposure to spread-based operations. The company retains a majority of its US life operations. In addition, in 2013 Allstate announced that it would stop direct sales of fixed annuities by the end of the year due to unattractive returns; the company will instead sell fixed annuities issued by third parties.
The company determined that nationwide online Allstate Bank was a noncore operating segment in 2011 and moved to sell its operations to Discover Financial Services. However, after the deal failed to gain regulatory approval, Allstate continued to wind down the banking operations through the end of the year.
The company previously disposed of the majority of its operations outside North America (including Allstate Investments in Japan and the direct auto business in Germany and Italy), focusing on its core markets in Canada and the US.
Catastrophe management is also a key part of the company's stability. To limit its exposure to catastrophic claims in the face of increasing severe weather events in recent years, Allstate has quit writing new homeowners policies in some coastal areas, including California and Florida, that are vulnerable to hurricane, wind storms, and earthquakes. While it still renews existing homeowners policies in California, the company tweaked its underwriting to reduce exposure to claims for fires following earthquakes.
Mergers and Acquisitions
Allstate entered the online marketplace with a bang in 2011 by purchasing auto insurer Esurance and insurance agency Answer Financial from White Mountains Insurance Group for about $1 billion. The purchase, which included $700 million cash plus the book value of the companies, made Allstate a formidable competitor in the online insurance marketplace. Allstate intends for the purchase to increase direct-channel sales.