Allstate Bets on Customer Service, Home Insurance

CEO anticipates a growth period as insurer expects 2012 earnings to double last year's.

Insurance Networking News, December 19, 2012

Noah Buhayar, Bloomberg News

Allstate Corp. CEO Tom Wilson is poised to expand the homeowners’ insurance business that he shrunk by more than a million policies in the last four years to reduce risk and boost shareholder returns.

Wilson, 55, is working to improve customer loyalty after a consolidation of Allstate agencies and rate increases led to defections in recent years. He’s also seeking to differentiate the insurer from other carriers by focusing on customer service.

“We’re on the glide path to get that business to where it earns a decent return,” Wilson said in an interview this month in his office in Northbrook, Ill., where Allstate is based. “I haven’t declared victory yet, but I think we’re about ready” to stop shrinking and expand again.

Allstate has been buying reinsurance, raising prices and limiting sales in vulnerable areas to guard against higher claims costs from severe weather. That strategy helped the insurer cushion losses from Sandy, the October storm that battered the U.S. Northeast. It’s also helped fuel a 51 percent rally in the stock price this year and is leading the company to its biggest profit since 2007.

“Sandy made management look very good” to investors, Paul Newsome, an analyst at Sandler O’Neill & Partners LP, said in a phone interview. “The loss was a lot less than what it could have been historically.”

The storm and other natural disasters in October cost Allstate $1.08 billion before taxes and after reinsurance recoveries. That compares with $857 million for Hurricane Ike in 2008, which led to $12.5 billion in industry losses. Industrywide, Sandy could cost twice as much, according to catastrophe modeler Risk Management Solutions Inc.

Sandy Response

Allstate’s customers complained to regulators in half of one percent of the more than 78,000 claims the insurer has logged in New York since Sandy through Dec. 13, according to data compiled by the Department of Financial Services. That ranks the insurer 15th among 24 companies tracked by the state.

Allstate had about 6 million policyholders for its namesake brand of homeowners’ coverage at the end of September compared with 7.3 million four years earlier, according to data on its website. In New York and New Jersey, two of the states hardest-hit by Sandy, the policy count dropped by more than 20 percent since the middle of 2006.

“We’ve done the risk reduction for the most part already” and now are thinking about how to “shift into growth mode,” said Matt Winter, who leads the unit that sells the insurer’s namesake brand of auto and home coverage.

Car Insurance

The shrinking homeowners’ business has put pressure on Allstate’s more-profitable car-insurance segment. As the insurer stopped protecting some homes, customers who had bundled both types of coverage chose to buy their auto policies elsewhere, Wilson has said.

“When you tell 1.2 million customers, ‘We’re sorry, we can’t provide you insurance anymore,’ if they have their auto insurance with you, they typically are not happy about it,” Wilson said this month at an investor conference.

Sandy also presents challenges.

The storm flooded the garage and basement in Debra and Billy Dong’s home in the Gerritsen Beach neighborhood of Brooklyn, destroying the boiler, washer, dryer and years of Christmas decorations.

The couple estimates damage is at least $50,000. Allstate sent them a check for about $7,600 to cover damage to their roof, garage door, windows and other parts of the home, they said. They don’t have flood insurance, which is typically underwritten by the federal government rather than companies like Allstate.

Repeated Calls

Three separate adjusters have been assigned to their claim since the storm, they said, and repeated calls to their agent’s office weren’t answered. The couple said they wouldn’t choose Allstate again after paying the insurer for three decades, including the latest annual premium of almost $2,000.

“If I’d put that money in an account, I’d be sitting pretty,” Debra Dong, a public school teacher, said this month in an interview at her home.

Wilson praised the company’s response to Sandy and said that Allstate representatives were among the first to arrive in affected areas after the storm and are proactive about asking customers if they have claims. At the same time, the insurer can’t be responsible for paying for flood damage that it doesn’t cover, he said.

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