Despite some growing pains, Allstate is confident that its bold newconsumer-direct initiative will benefit agents, consumers and the company.It isn't often that an insurance carrier can utter the phrase"consumer-direct sales" and win friends among its network of agents. Butthat's exactly what Northbrook, Ill.-based Allstate Insurance Co. believesit's in the process of accomplishing.

Despite the negative opinions most agents harbor for a consumer-directsales approach, Allstate has big plans for its network of 13,200 agents tocatalyze its Allstate Direct initiative, a $1 billion, multichannelstrategy that was launched in Oregon in March.

When Allstate executives deemed the Oregon project a success, theydecided in July to expand Allstate Direct to 15 additional states by theend of the year. The program is expected to be available nationwide by theend of 2001. Originally offering just auto insurance, Allstate plans to addhomeowners coverage to the Allstate Direct portfolio in September.

Designed to offer consumers lower-cost coverage combined withflexibility under a 24 hours a day, seven days a week sales strategy,consumers can use call centers, the Internet or an independent agent toresearch and buy insurance. A consumer, for example, could buy coverageonline at Allstate's Web site, file a claim with an agent and later make anaddress change through a call center. During the Oregon trial, mostconsumers found they could quote and bind an auto policy in about 20minutes.

Although other carriers have successfully implemented a mulitchannelcustomer sales and support strategy, one aspect of Allstate Direct'sinitiative has caused a stir among industry observers: Many carriers havestruggled to find ways to maintain their agent network while at the sametime offering direct sales.

Moreover, as Allstate prepared to launch its initiative earlier thisyear, the company notified its 6,500 full-time employee agents that theywould have to become independent contractors to participate in the AllstateDirect program. When the dust settled, about 2,000 agents-15% of Allstate'soverall captive agent force-opted to leave the company. Factoring in 9,000independent Allstate agents, about 13,200 fully independent agents aresupporting Allstate Direct.

Agent participation

While possessing its share of question marks, industry analysts believeAllstate Direct has a good chance to succeed. One reason is that despitethe agent fallout, Allstate is making a significant investment intechnology to enable agents to participate in the program.

"Allstate was facing greater risk by standing pat," says JamesLuscombe, a consultant for New York-based PricewaterhouseCoopers whospecializes in how the Internet influences agency distribution. "Theiragents were clunking along on green-screen PC terminals, so this is indeeda leap."

The initiative also is garnering high marks for its operational cost-cutting efficiencies.

"There is tremendous waste in the underwriting, pricing and overallprocessing of an insurance policy," Nikolai Fisken, vice president of e-financial research for Stephens Inc., a Little Rock, Ark.-based financialinvestment firm, notes. "Anything a carrier can do to address theseinefficiencies is positive."

Fisken, who co-authored a report released in June entitled, "Web-enabling E-Financial Services," describes Allstate Direct's business modelas reintermediation.

"Because of the slow Internet adoption on behalf of consumers andtraditional brick-and-mortar companies, the reintermediators have and willattain higher success ratios," Fisken explains. "Reintermediators operateon the premise that agents and other distributors are here to stay, andthey will make sure they survive by improving their business models throughthe use of the Internet."

Although agents may be somewhat removed from the sales process underthe Allstate Direct guidelines, Fisken believes the participating agentscan benefit in this new environment. "Because consumers can enlist a callcenter to make a change to their policies, agents participating in theDirect program can now concentrate on what they do best-and that's sellingproducts and services," he says.

Consumer demand

The impetus to launch Allstate Direct was hatched from a simplepremise: Consumers want a new way to research and buy insurance.

"As we looked at the industry as a whole and its acceptance ofinformation technology, we had a decision to make whether to embark on thisprogram earlier or later than the industry as a whole. We choose to do itearlier," says Steven Groot, president of Allstate International and thecompany's Internet project leader.

Breaking down the $1 billion expense to launch the program, Allstate,the nation's second-largest property/casualty insurer, earmarked about $300million in capital equipment and $700 million for systems development,implementation, deployment and advertising. These costs were spread outover the three core elements of the program: the four up-and-running callcenters, the Internet and the 13,200 participating agents.

Of the 2,000 agents that opted not to participate in the program, Grootsays many opted to retire, selling their books of business to other agentsinvolved in the Direct initiative. "Some agents practically went into hockbuying the business of an outgoing agent," Groot says.

However grudgingly, many of the agents who opted into Allstate Directunderstood that consumer-direct sales represented the wave of the future,he explains. "These agents are a fairly bright group of individuals thatunderstood that consumers have been seeking new and convenient way to buyinsurance. They saw the progress being made by Geico Direct and othercarriers, and were pleasantly surprised by the advantages of a consumer-direct sales strategy."

Allstate absorbed the costs for most of the technology expensesnecessary to connect agents to the program. Over the years, Allstate agentshad operated on "dumb" terminals batch linked to the mainframe system,Groot says. Information was transmitted using IBM 5270 terminals connectedto IBM AS/400 servers, and the communication process, including e-mail, waspainstakingly slow.

By the end of this year, all 13,200 agents will be equipped with newPCs-50,000 workstations across the entire network-equipped with theMicrosoft Office suite and Outlook e-mail system, as well as other softwaresolutions to foster quick and seamless communication between agents,Allstate's home office and the call centers.

"Once customer data is entered into the system it can be accessed atany time by any of the sales channels in the program," Groot explains. Towork out the kinks during the rollout phase, Allstate provided each agentwith a training program to flatten the learning curve for all program-specific software they'd need to use.

Passive awareness

So far, consumers that have used Allstate Direct discovered the programthrough what Groot calls "passive awareness." Many consumers stumbled uponthe new program while visiting Allstate's Web site,, forother reasons.

Hosted by an unnamed third-party vendor, the Allstate Direct Web site,Groot estimates, generates about 15,000 unique hits a day.

One consumer use tendency that Groot and his team identified in theearly stages is that consumers have used the call center with greaterfrequency than the Internet to research and buy coverage. But agentscontinue to have an integral role at some point within the cycle.

Eschewing the Web, Groot says, has been "more of an insurance issuethan a technology issue. A consumer's two biggest assets are their home andtheir auto. As a result, many aren't willing to click an icon on a computerscreen to buy insurance for these two important assets. They wonder if thetransaction really occurred at all. There are deductibles and riders withinsurance coverage that, frankly, people would rather settle in person."

Another issue is consumers' perceptions that online insurance is lesscostly to purchase. Groot says that unlike other products that commandgreater savings when bought online, buying insurance online isn't as muchof a bargain. "The most significant cost in the life of an insurance policyis claims processing. As a result, consumers have less incentive to visitthe Web to save on an insurance policy," Groot says.

Because Web sales at this time are moderate, Allstate is aggressivelyexpanding the call center component of Allstate Direct. The company hasbuilt four facilities and has two more on the drawing board, slated to beoperational by the end of the year. One of the four existing call centerfacilities, located in Stockton, Calif., is being operated by TeleTechHoldings Inc., a Denver, Colo.-based outsourcing firm.

While outsourcing a segment of an operation usually helps drive downcosts, Groot says the savings Allstate will realize by having TeleTechoperate the facility will be minimal.

Allstate operates the other three call centers-two are located inIllinois (Vernon Hills and Woodridge) and the other is in Charlotte, N.C.The four call center facilities range in size from 100 to 500 seats.

"We have built two call centers to hold 500 seats, but they are notfully deployed yet," says Groot. "We plan to wait and see how many of our20 million customers use the program before we fill those seats. And so farit's been real hard to read what the consumer behavior is going to be."

By 2004, Groot projects that business done via Allstate Direct mayaccount for about 20% of Allstate's overall book of auto and homeownerbusiness-with the majority completed through a call center or an agent. Onechannel that Allstate plans to bypass as it expands its direct program isWeb-based insurance marketplaces. Although Allstate is affiliated withthird-party Web shopping malls to offer insurance quotes, Allstate Directwill remain completely independent, Groot declares.

In good hands?

All told, Allstate Direct will be an indiscriminate boon to all of thecompany's customers because even those that don't buy direct will bebeneficiaries of the operational cost savings and overall streamlining ofefficiencies that the Direct program hopes to achieve, Groot notes.

Industry observers believe that consumers will give the program highmarks, and that carriers will be closely watching to see how agents reactas the program expands. Anytime carriers remove agents from the buyingprocess-or reduce an agent's role-they run the risk of alienating theagent, says Fisken of Stephens Inc.

When Progressive Insurance Co., Mayfield Village, Ohio, launched itsInternet direct program to sell auto insurance, agents that had beenaffiliated with the company formed an anti-carrier coalition that proved tobe ineffective. The same agents that were part of the coalitionsubsequently obtained quotes for their customers through Progressive.

"When this anti-Progressive coalition was formed, the company handledit with aplomb and overcame it," says Fisken.

For Allstate's agents, compensation could become a contentious issue.Agents receive a 2% commission for each policy sold through Allstate Directthat they are responsible for, says Rod Guilmette, a spokesman for theCanton, Mich.-based National Association of Professional Allstate agents.

Typically, agent commissions can range from 10% to 30%, depending on avariety of factors, Guilmette says.

As Allstate Direct evolves, all of its growing pains will be carefullymonitored by Allstate's competitors. Luscombe, of PricewaterhouseCoopers,believes other carriers similar in size to Allstate will be quick to adoptconsumer-direct selling strategies if Allstate Direct thrives.

"There's a 'country club' mentality in the insurance industry wherepressure mounts among the ranks to emulate those that are pioneering aconcept," Luscombe says. "These followers will be constantly askingthemselves, 'what is Allstate seeing that we aren't seeing?'"

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