Allstate dismisses Google’s plans to offer insurance shopping
February 5, 2015 by Becky Yerak, Chicago Tribune
Allstate’s chief executive sounded dismissive Thursday of Google’s plans to offer online insurance shopping, saying his Northbrook-based company already serves that segment of the market with its Answer Financial unit.
During a call to discuss fourth-quarter earnings, an analyst asked Allstate if it would join Google’s marketplace, which is expected to aggregate insurance quotes to enable consumers to compare prices.
Allstate CEO Tom Wilson said his company’s Answer Financial unit aggregates insurance quotes and generates $500 million in premiums for other insurers, including Progressive and the Hartford.
“They have been talking about doing that for some time,” Wilson said of Google. “We’re in the marketplace, and it’s not as big a market as you would see in the U.K. and other places” for a variety of reasons. “But I would say we’re there and active.”
Allstate released its quarterly results after the market closed Wednesday, showing earnings per share surpassing expectations.
Allstate also boosted its quarterly dividend by 7 percent, to 30 cents a share, and announced a new $3 billion stock buyback program. In its Thursday morning call, it also said that quote volumes through its Allstate agencies, where the company sells most of its policies, are at an all-time high, and that its ability to sign up customers has improved. The ranks of Allstate-brand exclusive agencies increased by about 400, or 4 percent, after years of shrinking.
In a report late Wednesday, investment bank Sandler O’Neill theorized that, despite beating earnings per share expectations, Allstate investors might be disappointed by the fact that the underlying profitability of its insurance business in the fourth quarter slipped from where it had been in recent quarters. Also, profit margins on its auto business were hurt by “frequencies,” or the number of times a loss occurs.
The fourth quarter of 2014 marked Allstate’s third complete year as the owner of Esurance, which it bought for $1 billion in late 2011.
One analyst on the call asked about the long-term profit potential for a couple of Allstate units, including Esurance.
Esurance continues to spend more on claims and expenses than it generates in premiums, though that differential has narrowed. Its growth rate has slowed, from the 30 percent range shortly after Allstate bought it to the teens. While some of Esurance’s rivals are spending the equivalent of 10 percent of premiums on advertising, Esurance is spending in the high teens.
Allstate responded that Esurance gives the company a way to compete for consumers who prefer to buy insurance online.
“The good news is it’s nearly twice as large as it was when we bought it,” an Allstate executive said on the call. “The bad news is, as a result, that has nearly twice the impact on the overall results, so it’s more noticeable.”
Besides advertising spending, Esurance is in more states and has more products, factors that also take a toll on expenses, Allstate said.
In 2014, Esurance expanded its auto, renters, homeowners and motorcycle insurance to additional states.
“What we don’t want to do is choke the growth in the business,” an Allstate executive said of Esurance. “The bottom line is we’re continuing to run the business on an economically correct basis.”
