|Title:||United States top 10 consumer-direct automobile insurance companies by market share in percentages as reported October 1, 2011|
Start of full article - but without data
Estimated Direct Channel Auto Market Share
Geico XX% USAA XX% Progressive Direct XX% Farmers (incl. XXst Century) X% Hartford X% Liberty Mutual (incl. Safeco, Ohio) X% Esurance X% Allstate X% GMAC X% MetLife X%
Note: Table made from bar graph.
Source: Allstate Corp. Investor Day presentation, June X, 2011;
estimates used A.M. Best data and Allstate's internal analysis.
The initial inquiry came from Allstate's Joe Lacher back in September 2010 and was met with a tepid response--Esurance wasn't for sale.
That didn't mean Esurance's parent company, White Mountains Insurance Group Ltd., wasn't willing to listen.
As conversations played out, an assessment put into play by Esurance Chief Executive and President Gary Tolman would ring true for each side. The online direct auto writer would be more valuable over time within Allstate's fold.
"Everybody agreed with that, everyone on the Allstate side, and everyone on the White Mountains side," Tolman recounted.
Allstate's acquisition of Esurance and its sister company, Answer Financial, was announced May XX. Roughly a month later, White Mountains Chairman and CEO Ray Barrette told investors that discussions with Allstate continued and finally reached a tipping point.
"When someone is making you an offer you can't refuse, you don't refuse it," Barrette said, according to a transcript of the June XX, 2011, investors' meeting.
Barrette also offered his own candid view of the deal, one that echoed Tolman's and would speak volumes to Allstate's market position and interest in the direct auto channel.
"They [Allstate] really see the value of Esurance. Mad frankly, Esurance is worth a lot more to Allstate than it is worth [to us] right now" he said.
Barrette described the deal to his investors as a $X.X billion total transaction that would leave White Mountains with $X billion in undeployed capital.
Allstate's pending acquisition of Esurance will double its estimated market share of the direct auto channel to X%, bumping it just ahead of Liberty Mutual into the fifth slot. That assessment is based on an internal analysis by Allstate that utilized A.M. Best Co. data.
The acquisition comes at a critical juncture for Northbrook, Ill.-based Allstate. Beset by rising first-half catastrophe costs and a sagging stock price, Allstate has simultaneously moved to overhaul its agency channel. The shift is designed to combine smaller agencies and create a more competitive agency baseline.
Just three weeks before Barrette's speech to White Mountains' investors, Allstate's Lacher explained during his own investors' day conference that commission levels would migrate from the XX% level on new and renewal business to the X% range. Those who do a better job of cross-selling their book would see more compensation, he said.
Lacher, who oversaw the company's property/casualty operations as president of Allstate Protection, said it was designed to take from the weak and give to the strong.
"If you're selling monoline auto and not delivering on those other components, if you're being a human modern and just generating quotes and roiling it up, you're going to find you're seeing your compensation cut," Lacher said on June X, 2011.
'That's Just Math'
He said at the time that Allstate didn't have a specific goal in terms of eliminating agency locations, but wanted agents who are bigger and stronger and have the resources to provide the right customer value proposition.
"Now if we're the same size we are today, and we get them to the scale, you'd probably see about a XX%, XX% decrease to make that happen," Lacher said in response to an analyst's question. "That's just math."
Through a spokesperson, Allstate declined an interview request.
As for the Esurance acquisition, Barrette told his investors that there wasn't much he could say in terms of Allstate's post-acquisition plans because it hadn't really shared any.
Lacher was more open with Allstate's investors, explaining that Esurance would ultimately be managed through a pull strategy.
"The Esurance folks will take their business model and pull out of the organization what they need to augment their capabilities and execute better, and a clear recognition that there is in fact a different business model here to be effective," Lacher said.
Lacher, however, won't be around to see how this strategy plays out. He left the company July XX, ending a stint that lasted less than two years. Allstate Chairman, CEO and President Thomas Wilson briefly addressed the management change during an Aug. X earnings call, but did not elaborate on a reason. He also said that Allstate's agent force was highly supportive of the carrier's strategy moving forward. The strategy is to offer agent contact for customers who prefer that route, a segment he characterized as personal-touch loyalists.
Esurance will focus on self-directed customers who may be heartened by the affiliation with Allstate's brand. Tolman said Esurance is on track to do $XXX million in premium this year.
Yet, there is another component to the transaction that holds additional potential. The acquisition includes Answer Financial, which Tolman described as one of the largest personal lines independent agencies in the country. White Mountains acquired AFI in 2008, and Tolman expects the independently run sister company to generate $XXX million in controlled premium this year.
AFI provides price points for up to XX different carriers, including Esurance, with business split XX% for auto and XX% for homeowners. "We're about XX% of the platform in terms of policies they issue" Tolman said.
Esurance CEO Will Stay
Esurance spent $XXX million in 2010 to market its brand, according to White Mountains' annual report. Last year more than five million potential customers initiated a quote with Esurance.
"To the extent that people are not buying from us, we're going to push those people to Answer Financial, either over the phone or online, and maybe Answer Financial can sell them a policy," Tolman said.
AFI had a XX% increase in policies written from Esurance leads in 2010. As a result, Esurance continues to be AFI's largest source of auto leads. Esurance generated $XX million in lead referral fees from various partners in 2010.
That kind of financial return is significant, given the rising cost of online marketing efforts. Tolman said when Esurance launched on Dec. XX, 1999, it quickly developed into Google's second-largest partner and paid $X.XX each time someone clicked for auto insurance.
"Those are now going for $XX," he said.
Tolman said there won't be meaningful changes in how the company is run. He will remain as CEO, and signed a three-year employment contract as part of the transaction. Tolman said AFI will continue to be an independent company.
Being part of Allstate will enable Esurance to not only bolster its brand and scale its ability to service claims, but also to compete more directly with Progressive and Geico, he said. "Plus they have significant financial capabilities" Tolman said.
"We are going to spend more on marketing," he added. "This year, we'll spend approximately $XXX million. I expect over the next two or three years we'll increase that significantly."
* The Trend: Customers' buying preferences continue to redefine insurers' distribution strategy.
* Behind the Trend: Insurers are trying to strike a balance between online and agent channels.
* Watch For: Direct channel lead generation to play a more vital role in carriers' agent sales strategy.