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Allstate adjusting to acquisition of Esurance

Published: Tuesday, June 12, 2012

Updated: Tuesday, June 12, 2012 09:06


 

CHICAGO - When Web developer Matt Bogan and his wife began looking for ways to cut expenses, a good place to start was the insurance coverage on a pair of 10-year-old, paid-off vehicles.

The Shreveport, La., couple had noticed Esurance ads, with voice-overs by "The Office" star John Krasinski, and recalled the online company was now part ofAllstate Corp., the nation's No. 2 auto and home insurer. That made Bogan "feel a little more confident about its reputability."

"I'm tech-savvy, and I'm into the self-service model, so I really like that Esurance made it easy for me to customize my own policy online, choose my limits and deductibles," said the 27-year-old, who was able to significantly cut his insurance costs.

Northbrook, Ill.-based Allstate just marked its first full quarter owning Esurance, a $1 billion bet the company made to play catch-up in the online insurance market dominated by Geico and Progressive. So far, some analysts are skeptical the deal will move the needle much, although online insurance sales is a market Allstate has to be in as more customers say they prefer to buy policies online, according to a shopping survey released in April by J.D. Power & Associates. Nearly 90 percent of Allstate's premiums are written by agents.

In the past three years, the percentage of consumers relying solely on online channels to obtain quotes has risen by more than 50 percent, to 23 percent, J.D. Power said.

At the same time, shopping auto insurance nationally has fallen to its lowest point in five years; only 25 percent of policyholders looked for a new insurer in the past year. That's down 8 percentage points from 2011, J.D. Power said.

Esurance has been enjoying growth in the number of policies on its books and in the premiums it's generating. Yet its losses have mounted. It suffered $61 million in underwriting losses in the first quarter on top of the $44 million losses in the fourth quarter. An insurer loses money on underwriting when the premiums aren't enough to cover claims and expenses.

And at least one analyst questions whether Esurance could end up like Allstate's Encompass unit, an independent agency business it acquired in 1999.

The goal with Encompass was to cater to insurance shoppers who wouldn't use Allstate agents exclusively because they didn't want to rely on just one company's product line. Premiums generated by Allstate through its independent agents' channel have fallen from a peak of $2.1 billion in 2004 and 2005 to $1.06 billion in 2011.

When the deal was announced in 1999, Allstate projected the unit's premiums to reach about $3 billion.

"Given Allstate's checkered history with Encompass, we're unconvinced that it can successfully manage growth and profitability at Esurance, whose customers' profile, like Encompass policyholders', differs significantly from Allstate-brand customers," Stifel Nicolaus & Co. analyst Meyer Shields said. Generally, Encompass targets wealthier consumers, he said.

Customers who patronize Allstate's namesake agencies like local hands-on assistance as well as "bundled" products, such as auto and home coverage.

Esurance, in contrast, is designed for consumers who prefer to shop and purchase insurance online. Shields describes the typical Esurance customer as "very price-sensitive, generally younger, with fewer financial assets."

Besides the fact that Esurance serves a different type of customer, Allstate observers are puzzled by at least one aspect of the online firm's website: A search for motorcycle insurance, for example, directs shoppers to Progressive, even though Allstate sells motorcycle insurance. An Allstate spokeswoman said Esurance currently has a contract with Progressive.

Esurance, headquartered in San Francisco, was launched in 1999. It prides itself on being environmentally conscious, maintaining a claims vehicle fleet that is 100 percent hybrid. And by pushing paperless accounts, it estimates policyholders have helped save 3,520 trees since 2000. Esurance also just concluded its "Poems of the Road" contest, in which fans could submit a ballad, sonnet, limerick or haiku about their travels.

Such engagement efforts are appreciated by people like Jamey Brown, a digital marketing director for fashion brand Umano in Atlanta, who said he is considering switching to Esurance from Geico.

"They've done such a good job listening to me on their social networks that I am genuinely excited about receiving this same kind of attention once I become a customer," said Brown, 24. "Esurance has made car insurance fun and cool."

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