Slipping through the Good Hands' fingers: Allstate grabs more customers, but holding on to them? Not | ALL Message Board Posts


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Msg  12 of 13  at  6/3/2021 11:35:56 PM  by

jerrykrause


Slipping through the Good Hands' fingers: Allstate grabs more customers, but holding on to them? Not so much.

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Slipping through the Good Hands' fingers: Allstate grabs more customers, but holding on to them? Not so much.

 Daniels, Steve.Crain's Chicago Business; Chicago Vol. 44, Iss. 22, (May 31, 2021): 1.
 

Allstate has a fan in vaunted activist investor Carl Icahn, who's endorsed CEO Tom Wilson's strategy of cutting costs and emphasizing insurance sold directly to consumers rather than via the company's army of agents.

But Icahn and other investors appear to be ignoring the potential fallout from sales-force unrest that boiled over with a recent lawsuit alleging multiple violations by the company of its agreement with roughly 10,000 agents around the country. While Northbrook-based Allstate is attracting more new customers than it used to, the recent record of holding on to the policyholders it already has is its worst in memory.

The net result so far of Wilson's "transformative growth" strategy: The company is running in place.

Auto policies at Allstate at the end of March numbered 21.8 million, exactly the same figure posted at the same point last year. The company generated new business of 929,000 policies, up more than 5 percent from 881,000 in the first quarter of 2020. So why were there no gains?

Just 86.7 percent of customers with expiring policies renewed them in the first quarter. That ratio was 87.4 percent the year before. Over the years, renewal rates have been considerably better—in the high 80s, reaching 88.5 percent as recently as 2018.

The source of the problem for Allstate is clear. Agents, who've in the past two years had their commissions changed to reward them more for sourcing new customers than retention, are showing signs of struggling at both. The new-business gains are coming from sales over the internet or phone, which surged 33 percent in the first quarter compared with the previous year. New policies brought in by agents dropped 3 percent year over year. Given that Allstate is pricing auto insurance 7 percent cheaper when sold directly than through an agent, that's not surprising.

In the past, agents drove Allstate's historically enviable retention rates, responding to customers when they get upset and helping with claims when accidents happen. Now agents are paid less to provide service, and Wilson is openly saying that the company can serve customers more cheaply from call centers than through agents and their staffs.

QUANDARY

The early results are setting up a quandary for Wilson: The instability stemming from his demand to transform the Allstate agent's traditional role from service to sales seems to be fueling more customer defections. In other words, is the new strategy really just transformation without the growth?

"If you're an agent and you're focused on new sales, that's a good thing. You're excited about it," Wilson told analysts on a May 6 conference call. "If you've been focused more on service and not on growth, then you're not going to be as excited about that change because it changes your business model."

An Allstate spokesman didn't respond to a request for comment. Asked to account for the increased customer churn, Wilson told analysts he couldn't pinpoint the reasons.

Glenn Shapiro, Allstate's president of personal insurance, said he's not concerned. "That number will move around a little bit on retention, but our focus is to create a lot of new business," he said. "That's what transformative growth is about. We're going to create a lot of new business so that the undulations of retention don't mute our overall growth."

That comment flew in the face of what Allstate executives have said repeatedly for years, which is that new business generated isn't the most important lever for increasing policies. Retention is. That is because with nearly 22 million auto policies, a single percentage point decline in renewals means the loss of more than 200,000 policies. "Retention is actually a bigger influence for us than the new business on our total items in force," Shapiro's predecessor Matt Winter said less than four years ago on the company's second-quarter 2017 earnings call.

Winter's assessment then seems borne out by today's numbers. Better retention enabled Allstate to grow modestly over the past four years. Auto policies sold directly to consumers or by Allstate agents grew an average 1.3 percent a year from March 31, 2017, until March 31, 2021. Over the past year, the slipping retention meant no policy growth at all.

Agent unrest is at a high level thanks to Allstate's cuts in commissions for renewing customers and various demands and restrictions on how agents conduct their businesses. The National Association of Professional Allstate Agents, which has more than 1,000 members, sued the company in May, alleging breaches of contract, claiming restitution for agents who alleged they'd been forced to sell their agencies on the cheap and asking a judge to stop Allstate from compelling agents to use its phone system rather than their own.

Commenting on Bloomberg TV, Icahn said May 26 that he invested heavily in Allstate late last year due to a large valuation discount to archrival Progressive. His investment, which the Wall Street Journal reported was about $400 million, looks good so far as it's trading around $135, up from what he said was about $90 when he invested.

Indeed, Allstate's stock soared more than 50 percent since November, while Progressive's is up just 7.4 percent in that time. But Allstate still badly trails in valuation. Even after the run-up, Allstate's stock is trading at less than 10 times estimated 2021 earnings, while Progressive is at nearly 18 times.

Icahn said he never had to rattle Wilson's cage as he's done with so many other CEOs because Allstate "lived up to what they were saying they were going to do, which was to transition a lot of their model. In other words, they would take out a lot of costs that were excessive, we thought, and go more directly to the consumer."

Whether Icahn's big win gets bigger from here will depend a lot on how Wilson manages an agent force that still is responsible for the vast majority of Allstate's business.

 


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