Allstate quietly is instituting a 7 percent discount for those who buy car insurance online or over the phone rather than through an agent.
The Northbrook-based insurance giant is making the change via filings in individual states, answering a question agents have had since Allstate announced late last year it was eliminating its Esurance brand and selling car insurance online as Allstate. The Allstate brand until now has mainly been associated with its 10,500 agents around the country.
Allstate has laid out its pricing plans so far in filings in Michigan, Pennsylvania and Indiana. The filing in Michigan was finalized June 19; the ones in Indiana and Pennsylvania on June 10. The new rate structure “target(s) a 7 percent premium reduction to reflect these differences in incurred expenses between agency-bound business and direct-bound business,” the company said in all the filings.
A spokesman didn’t respond to a request for comment.
For agents, this is yet another blow in a series of them leveled by Northbrook. The commissions they get when their policyholders renew were chopped 10 percent at the beginning of the year. CEO Tom Wilson has said he wants agents spending more time drumming up new customers rather than relying so much on preserving their existing ones for their revenue.
To incentivize the agents, the company increased commissions for new customers. But many agents, particularly the largest in the country, have said they can’t possibly bring in enough new business to make up for the loss of revenue on existing customers.
Now, the discount available at Allstate Direct, as Esurance soon will be called, will make it that much harder for agents to source new business. Effectively, drivers insuring with Allstate can get a 7 percent rate cut by calling an 800 number or buying online—and then get service from an agent if they so choose.
Consumers who buy direct are asked if they’d like to be assigned to an agent. If they say yes, Allstate chooses one for them, and that agent is paid just 3.5 percent of the premium annually to handle that customer's servicing needs, according to the National Association of Professional Allstate Agents (NAPAA), an organization representing agents that frequently has confronted Allstate about such issues in the past. That’s versus 9 percent agents get to service customers they source themselves.
The substantial rate relief Allstate drivers can get from buying direct “puts agents in a quandary,” said Ted Paris, executive director of the NAPAA.
Agents now must decide how to respond to prospects who ask about cheaper alternatives to whatever quote the agent offers. Some might argue that, ethically, an agent in that position should inform the prospect they will get a cheaper rate if they complete the purchase on their own.
“Allstate Direct exposes agents in terms of answering the question, ‘Is there any way I can get it cheaper?’” Paris said.
Allstate managers informally have told agents that the company doesn’t intend to advertise that consumers can get policies cheaper by buying direct, he said. The company’s message to agents also has been that those who buy direct aren’t the types of consumers who will go to an agent in the first place.
A car-insurance price war may be in the offing, triggered by Bloomington-based State Farm’s recent moves to cut policy rates by 11 percent on average nationwide. If State Farm’s extraordinarily deep rate cut is successful in winning more market share, Allstate could well be tempted to market the more price-competitive option to consumers.
As the largest U.S. auto insurer, State Farm is extraordinarily well capitalized and able to heavily advertise its rate cut, which it is already doing at least on the Internet.
Allstate Direct’s cheaper pricing also enables the company to better compete with Geico, which sells direct exclusively and markets itself as cheaper than other major insurers selling through commissioned agents.
When Allstate acquired San Francisco-based Esurance in 2011, the idea was to have an option for the growing number of consumers who prefer shopping online. For the next eight years, Allstate agents knew customers could buy cheaper insurance from Esurance, but there was no easy way for them to determine how much cheaper those policies were.
In addition, many consumers weren’t aware that Allstate owned Esurance.
The numbers spoke for themselves. Agents to this day are responsible for the vast bulk of Allstate’s auto business, which is by far the insurer's largest source of premiums. From the end of 2012, a year after Allstate acquired Esurance, to the end of 2019, auto policies grew 7 percent at the company overall, according to disclosures to investors. In 2012, agents produced 92 percent of those policies. Seven years later after the addition of Esurance was supposed to boost growth? Agents were responsible for 91 percent.
Now, everything is clear to agents and consumers. Allstate Direct has the agent brand right in its name. And the same auto coverage a consumer can get through an agent is 7 percent cheaper at Allstate Direct.
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