Allstate’s CEO aims to ensure its future

Wilson adds products to counter tough times

By Becky Yerak
Tribune staff reporter
Chicago Tribune--April 13, 2008

Despite racking up its second-highest profit ever, Allstate Corp.’s shareholder return fell 17 percent last year, worse than the 13 percent decline in Standard & Poor’s index of property and casualty insurers.

So far this year the Northbrook-based company is back on track, relatively speaking. Its stock is down only 6.4 percent to date while its industry peer group is off 12.3 percent.But Thomas Wilson, who just finished his first year as chief executive of the nation’s biggest publicly traded home and auto insurer, can’t be satisfied.

As insurers and other financial-services companies’ stock prices are beaten down by the market, none other than Warren Buffett, whose Berkshire Hathaway owns rival Geico, has said insurance-industry profit margins will fall in 2008. Agreeing a squeeze is on, Wilson acknowledges that Allstate’s costs probably will rise faster than the company can recoup them through higher prices.

His road map for navigating the tough industry landscape includes continuing to “reinvent” Allstate’s $30.62 billion property-liability business by finding new ways to appeal to certain demographic groups and by at least doubling revenues from an emerging business unit set up last year. Wilson also wants to add more products to Allstate’s $6 billion financial arm, including a new family of seven Allstate-branded mutual funds.

“We’re moving into what I’d call vertical” products in the insurance segment, those geared to specific demographic groups, Wilson said in a recent interview.

Allstate’s last big hit, Your Choice Auto, was rolled out in 2005 and offers options for motorists depending on whether they care about cheap or comprehensive coverage. It’s what Allstate considers a “horizontal” product.

“Say you’ve got a man, a woman, an independent woman, a gay person, a Hispanic person,” Wilson said. “Your Choice Auto is horizontal because it cuts across all of those groups depending on how much they value insurance.”

Allstate, which already serves 17 million households, plans to launch two vertical products this year toward specific consumer groups, possibly independent women, Hispanics or young drivers, Wilson said.

“We’re testing different concepts and have it narrowed to four or five things,” he said. “It’s the next evolution in product innovation.”

To be sure, consumer companies have marketed to these segments before.

“Hartford markets to AARP,” Wilson noted. “But they just take their standard product and target market it to AARP people, with a little bit of stuff on it but not a lot. “

Hartford Financial Services Group agrees with Wilson that customer segmentation “is a valuable and important way to approach the marketplace,” said Michael Concannon, Hartford senior vice president for personal lines.

But Hartford does more than market its standard auto product to AARP.

“It’s uniquely designed for AARP members,” Concannon said. He cited such features as a lifetime agreement vowing not to drop AARP members provided they continue to pay their premiums and keep a valid driver’s license. “That’s something specifically designed for AARP,” Concannon said.

Going ‘vertical’

Wilson elaborated on how Allstate might fashion vertical products.

“How about rapid-response claims service? Your car breaks down after 9 p.m. It’s going to be dark. Stay in your car, call us, we’ll be there,” he said of potential products for independent women.

“The Hispanic segment is very family oriented,” Wilson said. “What can we do to help them be protected?”

“In Europe, if you want to get your car fixed at an auto dealer with brand-new parts, you can do that,” he said. “If I’m a Jag owner and I love my car and I want to ensure that, if it gets wrecked, that a Jag dealer will fix it, maybe I’ll pay extra for that.”

Allstate also wants to at least double sales of its emerging businesses unit, which was set up in early 2007 and does about $2.5 billion in annual sales. The unit has about 20 lines, including a motor club and coverage for jet skis, motorcycles, boats and commercial vehicles.

“If you were to look at our market share in motorcycles it would be half or less of our auto market share,” Wilson said. “Why? The same people who own motorcycles own cars.”

Auto insurance accounts for about two-thirds of Allstate’s property and casualty premiums.

Wilson disclosed that Allstate in recent years pondered exiting the homeowner’s business but decided against it.

“After we had four hurricanes in 2004, and we had Hurricanes Katrina, Rita and Wilma in 2005, I pulled our group together and asked, ‘Should we get out of homeowner’s? Maybe it’s just a bad business to be in,'” Wilson said.

Instead, Allstate has curtailed its homeowner’s business in disaster-prone areas.

Targeting retirement

Allstate also has new retirement products for its financial arm.

According to a document filed last month with the Securities and Exchange Commission, Allstate also is introducing a family of seven funds called Allstate ClearTarget Retirement Funds.

The asset mix in each fund will emphasize capital growth for periods further from retirement, which, for example, is the case for the Allstate ClearTarget 2050 Retirement Fund, and capital preservation and income for periods nearer to and after retirement.

Management and investment decisions for the funds will be made by AllianceBernstein LP, a New York-based investment adviser.

Wilson is also considering other products.

“Let’s say you’ve got a consumer making $80,000 a year. They need to think about retirement, yet if they have a family, what happens if they die?” Wilson said.

Both life insurance and annuity salesmen might show up and try to sell to them.

“Which is it?” Wilson asked. “They need both, and one thing we’re working on will help them make the trade-off.

“If you think you can afford $150 a month, we’ll look at your lifestyle and family. We’ll put you in this risk category and we’ll buy this much life insurance and save this much for retirement. Later you’ll need a little less life insurance because you’re getting closer to retirement. We’ll do it for you. It’s almost like target-date mutual funds. You say you’re retiring in 2015. You give me the money and I’ll change the investment. Yes, we’re going to do it for you.”