Allstate Seeks to ‘Box In’ Geico, Progressive With Esurance
May 18, 2011, 4:43 PM EDTBy Noah Buhayar
(Updates share prices in seventh paragraph.)
May 18 (Bloomberg) -- Allstate Corp. Chief Executive Officer Thomas Wilson, who agreed today to buy online auto- insurance seller Esurance from White Mountains Insurance Group Ltd., said he’s seeking to limit rivals’ growth with the deal.
“What I’m basically doing is trying to box in Geico and Progressive,” Wilson said in an interview today. “We’ll compete aggressively with Geico and Progressive for those customers who are self-directed and want a branded experience. They’re great companies. They know how to compete in that segment. We believe we can compete with them there.”
Wilson, 53, is choosing to expand car policy sales by acquiring a company that sells through the Internet rather than build the business in-house. Allstate has lost auto clients for most of the past three years as younger drivers shunned using agents to shop for coverage. Buying the online-insurance seller saves Allstate time and money on advertising, Wilson said.
Zurich Financial Services AG expanded online sales in the U.S. with the 2009 purchase of 21st Century from American International Group Inc., which was selling operations to repay a government bailout. Travelers Cos., the insurer in the Dow Jones Industrial Average, is involved in what it calls a “long- term” process of building a business to sell auto policies through direct channels such as the Internet.
“Acquiring Esurance gives us a couple of things which we could build ourselves, but would take longer and would come with more risk,” Wilson said. Northbrook, Illinois-based Allstate’s underwriting experience will help Esurance lower claims costs and sell coverage to new customers, Wilson said.
White Mountains
Leah Knapp, a spokeswoman for Mayfield Village, Ohio-based Progressive Corp., declined to comment. A message left on a media hotline for Geico, a unit of Warren Buffett’s Berkshire Hathaway Inc., wasn’t immediately returned. Allstate is the second-largest U.S. auto insurer, behind policyholder-owned State Farm Mutual Automobile Insurance Co. Geico is third, followed by Progressive and Zurich.
Allstate gained 3 cents to $32.45 at 4:15 p.m. in New York Stock Exchange composite trading. White Mountains surged $51.55, or 15 percent, to $395.18. Allstate has gained 1.8 percent this year, while Progressive advanced 7.2 percent.
Allstate’s overall standard auto policy count dropped 0.7 percent in the 12 months ended March 31, the insurer said on April 27 when it announced its first-quarter results.
Progressive’s total personal auto insurance policies climbed to 11.9 million on March 31, a 5.8 percent increase from a year earlier. The gains were led by a 9.6 percent rise in the number of customers who signed up through direct channels.
Allstate said the deal for Esurance and Answer Financial, a White Mountains business that allows clients to compare quotes and buy insurance through its website, will cost about $1 billion and be funded with available cash. The transaction is expected to be completed by the end of the year.
--Editors: Dan Kraut, William Ahearn
To contact the reporters on this story: Noah Buhayar in New York at nbuhayar@bloomberg.net;
To contact the editor responsible for this story: Dan Kraut in New York at dkraut2@bloomberg.net
