Informed consumers can be a powerful antidote to bad news about advisors who do wrong by their clients.
June 03--When Web developer Matt Bogan and his wife began looking for ways to cut expenses, a good place to start was the insurance coverage on a pair of 10-year-old, paid-off vehicles.
The Shreveport, La., couple had noticed Esurance ads, with voice-overs by "The Office" starJohn Krasinski,and recalled the online company was now part ofAllstate Corp., the nation's No. 2 auto and home insurer. That made Bogan "feel a little more confident about its reputability."
"I'm tech-savvy, and I'm into the self-service model, so I really like that Esurance made it easy for me to customize my own policy online, choose my limits and deductibles," said the 27-year-old, who was able to significantly cut his insurance costs.
Northbrook-based Allstate just marked its first full quarter owning Esurance, a $1 billion bet the company made to play catch-up in the online insurance market dominated by Geico and Progressive. So far, some analysts are skeptical the deal will move the needle much, although online insurance sales is a market Allstate has to be in as more customers say they prefer to buy policies online, according to a shopping survey released in April by J.D. Power & Associates. Nearly 90 percent of Allstate's premiums are written by agents.
In the past three years, the percentage of consumers relying solely on online channels to obtain quotes has risen by more than 50 percent, to 23 percent, J.D. Power said.
At the same time, shopping auto insurance nationally has fallen to its lowest point in five years; only 25 percent of policyholders looked for a new insurer in the past year. That's down 8 percentage points from 2011, J.D. Power said.
Esurance has been enjoying growth in the number of policies on its books and in the premiums it's generating. Yet its losses have mounted. It suffered $61 million in underwriting losses in the first quarter on top of the $44 million losses in the fourth quarter. An insurer loses money on underwriting when the premiums aren't enough to cover claims and expenses.
And at least one analyst questions whether Esurance could end up like Allstate's Encompass unit, an independent agency business it acquired in 1999.
The goal with Encompass was to cater to insurance shoppers who wouldn't use Allstate agents exclusively because they didn't want to rely on just one company's product line. Premiums generated by Allstate through its independent agents' channel have fallen from a peak of $2.1 billion in 2004 and 2005 to $1.06 billion in 2011. When the deal was announced in 1999, Allstate projected the unit's premiums to reach about $3 billion.
"Given Allstate's checkered history with Encompass, we're unconvinced that it can successfully manage growth and profitability at Esurance, whose customers' profile, like Encompass policyholders', differs significantly from Allstate-brand customers," Stifel Nicolaus & Co. analyst Meyer Shields said. Generally, Encompass targets wealthier consumers, he said.
Customers who patronize Allstate's namesake agencies like local hands-on assistance as well as "bundled" products, such as auto and home coverage.
Esurance, in contrast, is designed for consumers who prefer to shop and purchase insurance online. Shields describes the typical Esurance customer as "very price-sensitive, generally younger, with fewer financial assets."
Besides the fact that Esurance serves a different type of customer, Allstate observers are puzzled by at least one aspect of the online firm's website: A search for motorcycle insurance, for example, directs shoppers to Progressive, even though Allstate sells motorcycle insurance. An Allstate spokeswoman said Esurance currently has a contract with Progressive.
Esurance, headquartered in San Francisco, was launched in 1999. It prides itself on being environmentally conscious, maintaining a claims vehicle fleet that is 100 percent hybrid. And by pushing paperless accounts, it estimates policyholders have helped save 3,520 trees since 2000. Esurance also just concluded its "Poems of the Road" contest, in which fans could submit a ballad, sonnet, limerick or haiku about their travels.
Such engagement efforts are appreciated by people like Jamey Brown, a digital marketing director for fashion brand Umano in Atlanta, who said he is considering switching to Esurance from Geico.
"They've done such a good job listening to me on their social networks that I am genuinely excited about receiving this same kind of attention once I become a customer," said Brown, 24. "Esurance has made car insurance fun and cool."
In its earnings call in May, Allstate said Esurance is "growing and competing effectively with Geico and Progressive." As of spring 2011, Geico and Progressive had combined market share of more than 50 percent of online car insurance sales, which is more than 10 times the combined share of Allstate and Esurance.
An Allstate spokeswoman said she couldn't share the statistics to back up its claim that Esurance is making inroads against Geico and Progressive, though the company reports that Esurance had 849,000 policies on its books in the first quarter, up from 786,000 in the fourth quarter.
"We are just as happy as the day we made the announcement, if not more at this point," Don Civgin, the Allstate executive who oversees Esurance, said during the first-quarter earnings call.
Allstate launched an advertising campaign in December for Esurance, rebranding it to reflect its affiliation with Allstate. Allstate poured $45 million into first-quarter advertising for Esurance, which in 2011 spent a total of $100 million on ads.
"We wanted to get some weight behind it," Civgin told analysts. "I'm happy to say it's working as well as we expected." Industrywide, advertising spending rose by 12 percent in 2011, to $5.7 billion, J.D. Power said.
Esurance's monthly unique visitors to its website rose 98 percent and 79 percent in January and February, respectively, from the same months last year, according to ComScore Inc., which measures Web traffic. The rates of increase slowed to 8 percent and 38 percent, respectively, in March and April.
Allstate said it's considering launching new Esurance products and increasing its presence beyond the 30 states, including Illinois, where it does business.
RBC Capital Markets analyst Mark Dwelle said he believes that growth opportunities for Esurance will be "significant" as new products are rolled out, the brand gains recognition and Esurance's products are available in more states.
Although Allstate has seen the number of policies on its books shrink along with its market share, it remains among the industry's more profitable players.
"Growth without profitability destroys shareholder value, and we are about building shareholder value," Matt Winter, president of Allstate auto, home and agencies, said during the earnings call.
Among the 10 biggest auto insurers, Allstate was the fourth-most profitable in 2011, according to data tracker SNL Financial. It had a "combined ratio" of 97.8 percent.
Geico, with its low expenses, including relatively little paid on commissions, and Progressive, with its lower losses, had combined ratios of 96.9 percent and 94.4 percent, respectively, SNL found.
In general, the combined ratio is a measurement of underwriting losses and expenses as a percentage of premiums coming in; 100 percent represents break even.
"If a company has a combined ratio greater than 100 percent, then they have more money going out than coming in, and they are losing money on their underwriting," SNL senior industry analyst Terry Leone said.
Six of the 10 biggest car insurers had combined ratios exceeding 100 percent.
In the first quarter, the combined ratio of the Allstate brand was 95.2 percent; it was 127.6 percent for Esurance, or 10 percentage points higher than Credit Suisse analyst Michael Zaremski expected.
David Carr, creator of ALLBlueBlog.com, a social network for Allstate agents, said Allstate needs a bigger online presence but doesn't know if Esurance is the right tool because it can't seem to make an underwriting profit. He also said Allstate could improve the profit of its new acquisition if it didn't keep Esurance as a separate brand.
Allstate says integration of Esurance is going "quite well" and outlines ways in which it can wring value out of its new unit.
"An obvious one is claims," Bob Block, Allstate's senior vice president of investor relations, said at a Raymond James institutional investor conference in March. "Our claims capability and scale provides Esurance the opportunity to lower their claim costs just by simply being on our national contracts for repair shops, salvage, things of that nature."
At least one consumer who recently went through Esurance's claims process didn't like what she encountered.
Erin Pursel, 28, a public relations consultant in Denver covered by Progressive, said she had an unpleasant claims experience after her car was damaged in April by an Esurance-insured driver in a gas station parking lot while she was vacuuming her vehicle.
She said her initial contact with Esurance was "great."
"There was little wait time to speak to a customer service representative, and the man I dealt with was friendly," Pursel said. She quickly received an email on April 27 confirming her claim and saying that she would be contacted within 24 hours by a Dallas claims employee.
That's when the situation deteriorated.
By May 2, she still hadn't heard anything. So she sent an email to the agent asking about her claim's status. A few hours later, she said, she received a "somewhat rude" email stating that Esurance hadn't received the estimate on fixing her bumper. Pursel said that documentation was included in her claim.
On May 4, Pursel said she again emailed asking for a status report but got no response.
On May 7, she said she called the Dallas Esurance office and left a message asking again about the status of her claim. She also tweeted that day about her frustrations in dealing with the company.
On May 8, she got a phone call from an Esurance employee saying that a check would be mailed.
"She was rude and short with me and, before I could even ask any questions, rushed off of the phone," Pursel recalled.
She received the check May 14, but it was for a lesser amount than the estimate.
"Luckily, the body shop that wrote the estimate has been wonderful to work with and was able to explain to me why the check was cut for a lesser amount," Pursel said. "At this point, my car is scheduled to go in next week for repairs, all of which are covered by the check Esurance sent me."
An Allstate spokeswoman acknowledged that the situation should have been handled better but said Esurance responded to Pursel within 25 minutes of her posting an exasperated tweet on May 7 and contacted her the next day saying a check was on the way.
Besides changes to Esurance's claims process, Allstate said in its first-quarter earnings call that Esurance's pricing is also likely to change. "We're adding the benefit of our deep pricing knowledge," Civgin said.
Allstate is known for not being afraid to raise rates to maintain its profit margins, but Chief Executive Tom Wilson noted in a brief interview after his company's shareholder meeting that Esurance drivers would see "more accurate pricing than before," including lower-risk Esurance drivers possibly seeing lower premiums. He also said new Esurance products being considered include renters and homeowners insurance.
For now, Shreveport's Bogan is enjoying Esurance's low rates. He previously had Allstate.
He didn't shop around much for insurance during the seven years he was with Allstate because he once was burned by a cut-rate insurer. In April, however, the Bogans dropped collision coverage on their Allstate policy and noticed "considerable" savings.
"Initially when we had full coverage on both cars from Allstate, it was about $350 a month," said Bogan, who is also a musician and sole proprietor of multimedia content provider DigitalBlack Media. "We dropped the collision, and it was somewhere around $200 for that one month, but then the next month when I went to pay it, it was back to $334 for just comprehensive."
Concerned that there had been an error, he called his Allstate agent's office and learned there had been a statewide rate increase.
He visited Esurance's website to get a quote, and 15 minutes later he was a customer.
"Esurance is $145 a month for full coverage on both cars -- a pretty significant savings," Bogan said.
(c)2012 the Chicago Tribune
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