Report: Allstate Will Trigger Online Insurance War

According to a new report by Forrester Research, Inc., brick-and-mortar insurance giant Allstate “will spark an all-out Internet war” in personal lines insurance by offering sales and service via the Internet.

“Allstate must aggressively hire from the outside to become a leader in electronic marketing and customer service,” the report states. “But ugly turf wars loom as power shifts from agent sales managers, product managers and underwriters to empowered consumer marketers and customer service experts.”

Forrester also contends that as online competition intensifies, a series of substantial changes will sweep the industry:

Pressure will be placed on agents to adapt to business on the Internet or face a substantial loss of income. The report asserts that the three leading insurers — Allstate, Prudential and State Farm — have either avoided direct selling and services approaches or gingerly used direct channels as a lead referral source for their captive agents.

Allstate’s actions, the report says, will prove that e-commerce is more important to consumers than its order-taking captive agents.

An industry benchmark for online insurance sales will be created. According to Forrester, the other leaders have yet to confront their channel conflict fears, while direct sales leaders like GEICO do not have brick-and-mortar locations and a limited online presence.

The initiative will wake up regulators. The report says that Allstate’s e-commerce initiative will force insurance regulators to reconsider outmoded restrictions, such as the inability of insurers to price their auto insurance products according to the channel through which they are sold.

Stemming The Tide

With insurance companies like Progressive Corp. and GEICO claiming to offer consumers substantial savings on auto and life insurance by eliminating the middleman, the report asserts that Allstate had little choice but to revolutionize its distribution system in order to stem the tide.

In addition, the report says that Allstate’s existing customers will demand a combination of personalized attention from their local agents and direct sales and service access from Allstate.

“To serve these customers Allstate must find a way to Internet-enable thousands of agents, many who feel threatened by technology and do not operate on Internet time,” Forrester notes.

Allstate Adapts

While Allstate has claimed that it will not cut its mammoth brick-and-mortar force of 15,200 agents, the company is planning to slash agents’ commissions by more than 50 percent when sales are made online. It also plans to transform its captive force of 6,500 employee agents into independent contractors like its other 8,700 agents.

In November 1999, the E-Commerce Times reported that Allstate plans to spend $1 billion (US$) on a two-year e-commerce initiative that will be bankrolled in part by cutting costs. The insurer will eliminate 10 percent of its non-agent work force — 4,000 jobs — for savings of $600 million.

By doing so, Forrester says Allstate will save additional millions, which can be reinvested into new marketing and advertising programs and strategic technologies.