When Allstate’s chief executive officer looks at potential growth opportunities for personal lines insurers, he sees an untapped part of the homeowners insurance market — customers that will buy home insurance online.
Speaking at the Bank of America U.S. Insurance Conference last month, Allstate Chair and CEO Thomas Wilson, who spends a lot of time talking about repricing and underwriting actions in auto insurance at investor conferences these days, devoted some of his remarks to homeowners instead.
“In the direct space, very few people sell homeowners,” Wilson said, referring to carriers using direct distribution channels to acquire customers rather than through agency channels. “It doesn’t make any sense to me. People buy houses on the Internet, right? They buy cars on the Internet. There’s really no reason why they shouldn’t buy homeowners on the Internet. Yet, right now very few people buy homeowners insurance on the Internet.”
Wilson made his remarks in response to a question from Bank of America Securities Analyst Joshua Shanker, who prefaced a question about Allstate’s lack of growth over the years with the analyst’s own summary of actions Allstate had taken to radically reduce catastrophe exposures after major events since the 1990s.
Direct homeowners sales, Wilson said, give carriers the ability to geographically target customers. “With direct, you can zoom right into a ZIP code,” he said.
In spite of Shanker’s review of Allstate’s past moves to cordon off or move away from cat-prone business, Wilson set his company apart from personal lines competitors who are wary of catastrophe risk. “I think homeowners is a growth business…Yes, we do have a lot of reinsurance in place. Yes, we might take a big hit someday. But we know the size and the probability of our risks to the extent you can know them,” he said, going on to offer two key reasons to support his contention that homeowners is a growth business.
“Homes are getting more expensive, and the weather’s changing. So, with more severe weather, there’s more catastrophes. More catastrophes [mean] more insurance needed. And so you can charge more,” Wilson said.
During introductory remarks at the conference, Wilson asserted that Allstate’s homeowners combined ratio between 2017 and 2021 averaged 12 points better than the industry. Translating that to dollars, he said, his company has made $4.9 billion more than if profit margins had been at the same level as the industry average.
While Allstate’s homeowners policy unit counts grew 1.4% in 2022, he suggested that Allstate aims to grow much more going forward — with boosts from both the Allstate agent channel and the independent agents channel. “There are plenty of places where you can grow in independent agents in the middle part of the country that aren’t Florida or California,” he said.
Countering the idea of middle-America growth, Shanker interjected that he imagined Allstate already had a lot of customers in Peoria, Ill.
“Yes, but there’s a bunch of independent agents [we don’t have]. Independent agents sell half the business in homeowners, and we should be able to capture some of that,” Wilson said. “And there’s nobody really that good in that space,” he said. “If you look at Progressive, they’ve still got some work to do,” he said, adding that Travelers, however, does do pretty well in homeowners.
It’s All About Price
Shanker’s overarching growth question leading up to the discussion of homeowners insurance was a broader one, which also dealt with challenges Allstate has faced in growing its auto insurance business. When Allstate nonrenewed homeowners business in cat-exposed areas after tornadoes and hailstorms in 2009-2011, “a lot of auto policies were lost as well” in the process, the analyst suggested.
Going on to describe distracted driving spikes in 2014-2016 and the inflationary challenges of the last year, Shanker said, “Allstate has never really had the opportunity to show that it can grow” in auto.
Wilson set forth the specifics of a “transformative growth strategy” at the start of the session, outlining–as he has done at many recent investor conferences–a multipart plan launched in 2019. Still, Shanker voiced investor concerns about continued obstacles to progress. “Is there a multiyear period of growth that comes into play following this [current] repricing initiative? Or are we always in a competitive industry where the next thing is going to happen that’s going to make it difficult for Allstate to really stretch out its wings and become bigger?”
Replied Wilson, “It is true that as we had to reshape the company, we had to give up some policies. And I was good [with us] doing that. You should make money in every line, every year, every state. You shouldn’t be trying to subsidize stuff.” But, he added, there was more to the story of why Allstate hasn’t grown market share as fast as others. Essentially, he said, the “old Allstate” in the pre-2019 period had a different model, something he personally didn’t appreciate until later.
Specifically, he said, in 2010-2011, after the financial crisis, leadership viewed the company as a “premium price, high-quality business…We thought we had good margin and we made high returns. And that basically enabled us to hold share,” he said, contrasting the new Allstate.”This new strategy is basically — it’s about the price.”
This is an edited version of an article originally published in Carrier Management, an award-winning publication of Wells Media Group. Sclafane is the executive editor of CM.
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