Allstate Chases New Distribution Channels

Looking to augment its direct sales channel, Northbrook, Ill.-based Allstate Corp. has purchased Esurance and Answer Financial from White Mountains Insurance Group Ltd. for approximately $1 billion. The boards of directors of both companies approved the deal, which is expected to close in the fall of this year.

By acquiring these two companies, Allstate looks to broaden its business model, which has long relied on captive agents for sales. With San Francisco-based Esurance, Allstate acquires the third-largest provider of online auto insurance quotes whose premiums volume has grown an average of 20% over the past five years. It also acquires a Web-based technology stack developed specifically for the needs of self-directed consumers.

Likewise, Answer Financial serves self-directed auto insurance consumers, enabling quote comparisons and assistance in choosing from 20 brand-name insurance companies.

Currently Allstate and Esurance each command about 2% of market share in direct channel auto sales. By way of comparison, market leader GEICO maintains 38% market share.

In his remarks announcing the deal, Allstate President, Chairman and CEO Thomas Wilson, acknowledged that shifting consumer preferences necessitated the transaction.

“Our strategy is to focus on individual preferences and utilize different value propositions for distinct consumer segments," Wilson said. “Our Allstate agencies do an outstanding job of serving customers who want a local personal touch and prefer to purchase a branded product. Esurance will expand our ability to serve customers that are more self-directed but still prefer a branded product. Answer Financial will strengthen our offering to individuals who want to be offered a choice between insurance carriers and are brand-neutral.”

In a subsequent conference call, Wilson said he views both companies as good growth platforms and will continue to utilize their brands. Likewise, Allstate will keep the companies as separate functioning business and retaining its existing upper management.Nonetheless, he does foresee some synergies from the deal.

“It’s economically attractive because we will improve the marketing effectiveness of the Esurance operation and then there are great benefits for Esurance from utilizing Allstate’s pricing and claims expertise,” Wilson said.

While it is tempting to regard the billion-dollar deal as an acknowledgement of the ascendancy of the direct-sales model employed by competitors such as GEICO and Progressive Insurance, Allstate continues to invest in its agency network.

In February, the company announced it would open 140 agencies Texas and 120 in California. Indeed, the geographic implications of the acquisition are also noteworthy. While Esurance sells coverage in 30 states, 50% of its premium revenue from California, Florida, New Jersey and New York.

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