As the property/casualty industry continues to get hammered by financial losses stemming from rising claims costs and deteriorating margins, Allstate Corp. is realizing that the best growth opportunity lies in the financial services arm, whose main products are life insurance and investment products."The financial industry is growing faster as an industry, so there's more of an opportunity to grow that slice of the business," says Edward M. Liddy, chairman and chief executive officer of the Northbrook, Ill.-based company.
"But there's also an opportunity in property and casualty, because 1,395 companies with a property and casualty business have 55% of the market share and over time we believe we can grow faster than the industry."
Much of Allstate's revenue still comes from the property/casualty business, though the company has been a multiline insurer since 1954.
About $23 billion of revenues comes from the property/casualty business, and about $5 billion comes from Allstate Financial, including Allstate Bank, a thrift, and Allstate annuities, which are sold through banks and other channels.
This revenue mix will change, Liddy says, although he did not specify by how much. "I think it will change because of opportunities, but I do not run a business by saying I want the mix to be x or y," he says. "Once you start running a company by thinking about what the mix should be, you'll reach your goals and say 'whew.' That's not the way to do it."
Expanded Reach
Still, Allstate is expanding its financial services reach by spreading out its product line and distribution channels and by advertising.
As part of its expansion into financial services, the insurer began actively promoting Allstate Bank last October. The thrift makes most of its sales through Allstate agents, 6,000 of whom in the United States sell mutual funds and annuities. The thrift's assets now total $350 million, after being close to zero a year ago.
"For a company with $85 billion of assets, certainly $350 million isn't much," says Casey J. Sylla, who recently was named chairman and president of the unit. "CDs are the bulk of the sales at the bank."
The most encouraging statistic from the bank unit might be that half its sales this year are to people who do not have another relationship with the insurer.
"We can't track if they've ever had a policy with us, but they're not current policyholders," Sylla explains. "I think a reason we're reaching new folks is because we're accessible. In regional and rural areas, we're there. Our agents are in these places, they'll call on customers, the products are simple, and the folks are interested."
Allstate Bank also offers savings and checking accounts. It has an online presence as well, though Mr. Sylla said this has not produced much in sales.
Along with Allstate Bank, the company is also pushing further into investment-type products, for example, its Allstate Treasury-Linked Annuity, a fixed annuity that targets the conservative bank channel. This product, tied to the five-year Treasury security, was introduced this year and has bolstered fixed annuity sales.
Allstate was the fifth-largest fixed annuity provider through banks in the second quarter, with $547 million of sales, according to Kenneth Kehrer Associates, a Princeton, N.J.-based consulting firm that tracks annuity sales through banks. The insurer is also in the top 10 in bank sales of variable annuities.
So Allstate's "core" business has become more wide-ranging than ever, Mr. Liddy says.
"We're asking our agents to be bigger and broader; we're expanding our footprint because staying where you are is not a good strategy," Liddy says. "Of course, you have to change in a balanced way."
Life Signs
Allstate is not the only property/casualty insurer to move away from its base, says Michael J. Barry, the managing director of insurance at Fitch Inc. in New York.
"The business prospect in the life business is more bright than P&C," Barry says. "The shareholders realize that there's more volatility in the property and casualty business. A big catastrophe or a lawsuit can be expensive.
"That's why you're not seeing a lot of life and health companies push into property and casualty. In fact, most of them are backing off, while the property and casualty companies-such as Allstate, AIG, and State Farm-keep moving away from their core business," Barry explains.
Furthermore, Barry believes Allstate's multiline message is getting through. "I'm starting to think of Allstate as a multiline business, though Allstate is still property-and-casualty driven."
Diversifying the business will please Wall Street investors, says Peter Patrino, the director of insurance ratings in Fitch's Chicago office.
"If you have everything in one line and that line goes bad, it creates problems," Patrino says. "Wall Street likes predictability, and you're much more stable with many lines."
Michael Cohen, a vice president at A.M. Best Co. in Oldwick, N.J., says that if Allstate believes in selective underwriting, "there's a limit to how far the company could build its property and casualty business. And they are already very sizable."
Allstate is the second-largest auto and homeowners' insurance company in the United States.
As for Allstate Bank, it fits the company's overall expansion plan though it is not expected to become a big part of the company. "But if at the end of the day, the bank is there to have more of the customer's assets, that's a realistic goal," Patrino says.
"Is the bank going to be a meaningful part of Allstate? That I can't answer," Cohen says. "Allstate is a very big company. But there is an opportunity because, if you look at the households they have in property and casualty insurance, it's a very big group."
For the thrift to continue growing, the agents must remain interested, and that might not happen, says Valerie Jordan, the president of Jordan & Jordan Associates, a consulting firm in Belchertown, Mass.
"It's like trying to sell life products in a property and casualty agency; a lot of times the product sits on the shelf and collects dust," Jordan explains. "It's natural for these guys to fall back to what they're comfortable" with.
But agents in rural areas, where customers lack many banks to choose from, might stay interested, she said.
"They're driving around in a truck, covering a real wide area, and they're offering a wide array of products," Jordan says. "They can offer banking products as well."
So far, it is in such rural areas that Allstate Bank has seen its best growth, according to Sylla.
This article appeared in American Banker, a Thomson Media publication.
