Allstate Gets Direct Sales Under Way in Oregon

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Allstate's insurance agents will have to provide "better service than a computer" to survive in the company's new hybrid sales model, according to one analyst who follows the Northbrook, IL-based company.

Allstate Corp., one of the nation's largest insurance companies with annual revenues of $25 billion, began selling auto insurance directly to Oregon consumers this month through its Web site as part of a major restructuring announced last year. The company plans to add direct sales channels state by state, putting it in competition with its nationwide network of 15,000 agents.

"Channel conflict is a pill they had to swallow," said the analyst, Alain Karaoglan of Donaldson Lufkin & Jenrette, New York.

He said Allstate is offering policies at the same price whether consumers buy through the Internet, by phone or through an agent, so agents can't complain that the company is undercutting them in price.

"At the end of the day, if the customer would rather deal with a computer than deal with an agent, then the agent doesn't deserve a commission," he said. "In the long run, I think what it's going to do is to weed out the weaker agents, and only the stronger agents are going to survive."

He also said Allstate was assigning agents to cross-sell additional products to consumers who purchase insurance through direct channels, so agents still will have the opportunity to earn some commissions from the company's direct sales.

Allstate executives were not available to comment on their strategy, but the company has told analysts that it was meeting its internal projections for rolling out the direct/agent hybrid model. On the company's Web site,, it offers a link for Oregon residents only, allowing them to obtain a quote online or to buy a policy. It also contains a tool for finding an agent and other features to help consumers buy their auto insurance.

Karaoglan said it was too early to evaluate how successful the initiative has been, but consultant Don Jackson said he expects Allstate to be in for an uphill battle in becoming a direct seller.

"I think it's going to take them a lot longer than they thought it was going to take them," said Jackson, a consultant based in Middletown, DE.

He noted that the company hasn't had a long history of interest in the direct marketing channel. Last year, for example, the company eliminated the direct marketing division of the CAN Personal Lines insurance company, which it had acquired.

He said the company appeared to be forced into a direct sales strategy by economic forces.

"It seems like a logical choice for a company like Allstate to go into the Internet and direct selling, because by so doing, they expand their distribution channels and in all likelihood, through that integration, they can see some very positive results that probably will be welcomed by Wall Street," he said.

Allstate's stock has been languishing for the past year, but Karaoglan said the move to direct selling was not simply to appease investors.

"It's something they absolutely needed to do, or their ability to generate more business would have shrunk over time," he said. "Everyone who is in the auto insurance industry is going to have to sell policies however the customer wants to buy them. Customers aren't buying a lot of insurance on the Internet yet, but they will."

Karaoglan pointed out, however, that selling insurance directly is not necessarily a ticket to profitability. The heavy marketing costs associated with direct selling can be prohibitive if companies do not have strong controls on their claims-settlement process, he said.

Insurance agents don't seem to be fazed by big companies like Allstate cutting them out of the picture.

"We're not afraid of the Internet," said Clark Sitzes, executive vice president at the Oregon affiliate of the National Association of Professional Insurance Agents. "We embrace the Internet. We believe that agents provide a level of professionals service that consumers want, and we think consumers are willing to pay 10 percent to 15 percent more for that service."

Insurance agents' commission averages about 12 percent, he said.

Meanwhile, Allstate also has been beefing up its technological capabilities in its database and call centers to be better able to handle its multichannel sales efforts.

Michael Cochran, a vice president at eLoyalty, Chicago, said his company has been working with Allstate since late last year to implement database technologies that will allow Allstate to access each customer's history with the company no matter what channel the customer chooses to use.

"This totally breaks the mold of the old Allstate," he said.

He said eLoyalty began working with Allstate in January to develop a new technological infrastructure for its call centers.

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