Marketing plan for an insurance company

Marketing Plan

The project is to create a marketing plan for Allstate. Allstate is one of the largest insurance companies in the United States, and they compete across most segments of the insurance industry. In 2007, Allstate's revenues were $36.769 billion, and their profits were $4.6 billion. Creating a promotional plan for Allstate represents an interesting challenge. They operate in some many segments, and have such a broad target market, that the marketing plan needs to be both broad-based and also fairly well targeted. It needs to be broad-based in order to drive business to all of the company's lines, and to market the company itself rather than just one segment. It needs to be well targeted in order to prevent competitors from exploiting a lack of focus on the part of Allstate.

There are several steps to completing the marketing plan. The first step is to conduct a literature review. The review needs to be sweeping - it must provide tools for analyzing the insurance industry, its segments and their target markets. The review should also provide insight into the development of a marketing plan that will be effective. For this project, the marketing plan itself is comprised of two distinct components - the Allstate plan, and a plan for an individual agent. These represent two distinct plans, so the research needs to provide sufficient information to approach both topics equally well.

The literature review is then analyzed, and findings recorded. These findings will ultimately provide the basis for the marketing plan. This process is merely a formalized version of what every marketer does during the preparation process for a marketing plan. At this stage, we should be synthesizing the information from both the literature review and any other research we've conducted.

The project splits here as well. On one side there is the plan itself, but on the other side we will further our analysis of the research, circle back from the completion of the marketing plan, and attempt to discern some generalizations that can be used in the formulation of future marketing plans. As valuable as creating one plan is, it is equally valuable that we are able to use the skills and knowledge acquired during the course of this exercise in future marketing endeavors as well.

We will then bring the entire exercise to a conclusion, tying everything back together, from the methodologies to the final marketing report. The process is as important as the results, because while the results are a plan on paper, the process is a tool that can be used time and time again.

Ultimately what we hope to accomplish in the course of this exercise will be three distinct outcomes. The first is a marketing plan for Allstate, a multi-billion dollar insurance company of incredibly broad scope. The second in a marketing plan for an Allstate agent, a unique business entity with its own needs and objectives. The third is to develop a research and writing methodology, as well as a body of knowledge, that can be applied consistently across different industries and business models. In achieving these three outcomes, we hope to acquire a stronger understanding of the fundamentals of a marketing plan and the steps that go into creating such a complex document.

Research Methodologies

The amount of knowledge required to complete this task is significant. Writing a marketing report that covers what are essentially two distinct businesses, and developing an understanding of the techniques and skills that go into such marketing reports requires a deep body of knowledge and strong skills base.

We took as a starting point the need to understand the insurance industry. The industry is vast, but there were two potential starting points. The first potential starting point was to find an outside source of industry research. This lead to a major roadblock, one that is common in the business world. A significant portion of business research is performed on a for-profit basis. One can suppose that the reason is simple - the intended audience is business, and therefore that audience intends to use the information to generate profits. It stands to reason that any product that is going to be used to generate profits will cost money. As a student, however, it is not reasonable to pay hundreds of dollars for research, so industry information must be found elsewhere, even if it means acquiring it piecemeal.

This leads to the second potential starting point, which is internal sources of research. As with many industries, the insurance industry has an association, set up by the firms within the industry as a communications and advocacy tool. In this case, we found the Insurance Information Institute. This group provides a wealth of information online, for free, about the insurance industry. The information is presented in a number of ways, including overview, segment-specific, and geographic.

With industry knowledge in hand, the next step is to gain an understanding of Allstate's operations and how they fit into the insurance industry. Before this process is started, some of the learning objectives should be identified. The main starting point for that is to understand the sorts of information we will be looking for with regards to Allstate. This begins with the SWOT analysis.

SWOT, like other standard business analytic tools, provides a framework for understanding a company. The knowledge gleaned is then to be applied to the specific project at hand. So the first step is to gain an keener understanding of the SWOT tool, how it works, and what the desired outcomes should be. This will help guide us in our company research, by focusing on the areas about which we need to learn.

The next step is to learn about other tools that can be used to complement the SWOT. In reading about the structure and objectives of the SWOT we gained significant guidance as to the types of things we wanted to analyze with regards to Allstate. You understand that the internal and external environment are critical, but the SWOT will inevitably leave gaps in our understanding. Thus, we search around management and strategy literature for other tools. Ratio analysis, for example, helps to understand the company through evaluation of its financial statements.

This provides view of the company in quantifiable terms, whereas the SWOT focuses on qualitative evaluation. We learned about other tools as well - gap analysis, measurement plans and the formulation of useful success criteria.

Essentially, the SWOT is a tool to analyze the internal and external environment. It focuses on the internal strengths and weaknesses of the company, and the external threats and opportunities. The value of the SWOT is that it allows for these elements to be weighed against each other. This does not simply mean strengths vs. weaknesses, but also applies strengths to opportunities and weaknesses to threats. This aids in strategy formulation. The most important strategy will be to ensure that the external threats do not exploit areas of internal weakness, as the results could be catastrophic. Aside from shoring up weaknesses, it should be examined where strengths can be used to exploit market opportunities.

Gap analysis is a way to gain perspective on a business' operations. The analysis examines to dimensions - where the company is and where it wants to be. Once an understanding of this relationship is gained, the gap analysis is then used to examine reasons for the gap, and how those reasons can be dealt with. The ultimate idea is to decrease the size of the gap, to take the company closer to where it wants to be.

Measurement plans outline the ways in which a company can measure the outcomes of its strategic initiatives. For the purposes of the marketing plan, this relates specifically to the outcomes of its marketing program. The measurement should be related to a gap analysis, in that the plans should be measured against an ideal, and that ideal should flow from the "where we want to be" part of the gap analysis. The ways in which the outcomes are measured pertain directly to the definitions of success of the program. Further, measurement plans and gap analysis both tie in to success criteria, which are the definitions of success. These flow from the gap analysis, and the measurement plans outline the ways in which the company is or is not meeting the success criteria. Put together, these three tools result in a measurement of a plan's success and allows the firm to adjust its strategies on the fly, in order to ensure that they are constantly at their most effective.

From there we move into the gathering of information about Allstate itself. The company provides a significant amount of information in its annual report, so that is a natural starting point. While the annual report is a strong source of information, it cannot be considered an entirely neutral source. Granted, securities regulators require that companies be relatively conservative in the statements that they make in the annual report, but it takes a degree of experience and knowledge to parse through the unique language of annual reports.

Once the report is analyzed, we have a sense of how the SWOT will shape up. However, this must be supplemented with sources that have less bias. For a company analysis, this tends to be the financial news, of which there are dozens of quality sources. Academic research seldom provides sufficient or timely insight into a company's operations, but may have value for broad-based issues. The insurance industry, for example, is the subject of economics-related academic papers. However, the financial markets are driven by access to detailed, accurate and timely information. Money, rather than academic reputation, is at stake, and that makes these sources far more valuable in our ability to understand a company and its operations. Thus, the financial news should be scoured for facts, insight and analysis with regards to Allstate's operations and role within the insurance industry.

The process used to learn about Allstate will need to be repeated with regards to the role of the insurance agent, so that we can build an effective marketing plan for an agent as well. Being that an individual insurance agent is a different type of business within the greater model of the insurance industry, there is not the same body of knowledge. Insurance agents are not publicly traded, so the information available about their operations is not driven by free market considerations. Therefore, we start our search by scouring the Internet for tips and information geared towards insurance agents. Other types of businesses are similar - investment advisors, real estate agents being two examples. Some of the information learned about these businesses can be used to help understand the insurance agent business, if it is sufficiently broad-based.

Finally, the information we have gathered must be synthesized and molded into a marketing plan. In order to do this, we must learn about the structure of a marketing plan, and the steps necessary to create an effective one. For this, the Internet provides a wide range of information. There are many "how-to" type of sites that break down the marketing plan into its component parts and steps. Since these "how-to" plans vary from one another, we felt it best to use more than one source. The key points will remain largely the same, and those are the ones we felt we needed to include. Other points were included or excluded at our discretion, but we were confident that if we exposed ourselves to enough ideas about building a marketing plan that we would be able to make those discretionary calls with confidence.

These methodologies are ultimately fairly simple. It is the knowledge gained, and the synthesis of that knowledge into an effective marketing plan, that represents the most difficult components of this task.

Research Findings

Literature Review:

No author. (2008). Commercial Insurance 2008. Insurance Information Institute. Retrieved August 6, 2008 at http://windowsxp-privacy.net/?id=198760097

This handbook, published by the leading insurance industry association, outlines and provides statistics regarding the insurance industry. Its website provides supplementary pages and publications that break down these numbers into specific industry segments. There is also a geographic breakdown as well. This information was useful in understanding the segments of the industry, where opportunities may lie, and the other macro-level business considerations. It also provided information on the products that insurance companies offer.

No author. (no date). Considerations in Writing Success Criteria. University of South Carolina. Retrieved August 6, 2008 at http://hr.sc.edu/profdevp/classes/epms/handouts/epms.handout4.pdf

This article outlines the components of effective success criteria. It illustrates how to write success criteria that are observable, measurable, and attainable. The piece is geared more towards individual employees but the principles remain the same if discussing a marketing plan.

No author. (2008) Gap Analysis. University of Cambridge. Retrieved August 6, 2008 at http://www.ifm.eng.cam.ac.uk/dstools/choosing/gapana.html

This article briefly explains the concept of gap analysis. In simple terms, the piece explains what successful gap analysis should look like, and what its limitations are. From this foundation, I was able to adapt the concept of gap analysis to Allstate and the insurance industry.

Barr, Stacey. (2008). How to Make Your Performance Measurement Plan Realistic. ArticleBase. Retrieved August 6, 2008 at http://www.articlesbase.com/management-articles/how-to-make-your-performance-measurement-plan-realistic-510016.html

This article gives tips on performance measurement plans. The performance measurement plan complements the gap analysis. This piece is useful to understanding the concept of performance measurement, which is a critical component of a marketing plan.

No author. (2007). SWOT Analysis. QuickMBA.com. Retrieved August 6, 2008 at http://www.quickmba.com/strategy/SWOT/

This article outlines the concept of SWOT analysis. It walks you through the steps of a SWOT, and illustrates why conducting a SWOT is important. It was helpful in my understanding of the types of issues that need to be considered when undertaking a SWOT analysis, and in understanding how best to conduct a SWOT. The article was also beneficial in my ability to interpret the results of the SWOT that I conducted on Allstate.

Rogers, Johannah. (2001). Six Keys to B2C E-Commerce Success. Insurance & Technology. Retrieved August 6, 2008 at http://www.insurancetech.com/printableArticle.jhtml?articleID=14706263

This article outlines some of the issues surrounding the use of the Internet by insurance companies to reach consumers. It then outlines six keys to success for insurance companies in incorporating the web into their marketing strategy. The article was useful in outlining some of the core issues that insurance companies must consider when developing the e-commerce component of their strategies.

No author. (2008). Auto Insurance: Can you Afford Not to be in Good Hands? Allstate. Retrieved August 6, 2008 at http://www.allstate.com/auto-insurance/auto-insurance-comparison.aspx

This is an example of the ways in which Allstate uses its website to compete. It shows some of the strategies in which insurance companies in general compete, including some of the key points of competition. This page, and the Allstate website in general, provided much valuable information on the insurance industry's competitive environment.

Allstate financial statements and key ratios from Reuters, retrieved August 6, 2008 at http://www.reuters.com/finance/stocks/overview?symbol=ALL.N

The financial statements and ratios were necessary to get a picture of Allstate's financial health, including a sense of how that health relates to its industry and sector competitors. These financial figures can indicate relative strengths and weaknesses of Allstate, aiding in the preparation of a SWOT.

Allstate profile from WikiInvest, retrieved August 6, 2008 at (http://www.wikinvest.com/stock/Allstate_(ALL)

The profile for Allstate outlines some of the company's operations and provides information that is valuable in the SWOT analysis. It gives a sense of how the industry is structured, and how firms in the industry compete. This was valuable not only in preparing the SWOT but getting a sense of the broader industry issues as well.

No author. (2002). Convergence of Banking and Insurance Industries Being Led by Allstate. PRN Newswire. Retrieved August 6, 2008 at http://www.prnewswire.com/cgi-bin/stories.pl?ACCT=104&STORY=/www/story/07-11-2002/0001762154&EDATE

This article discusses Allstate's strategy for penetration of the banking market. This strategy was believed to have provided Allstate with a competitive advantage. The article gave a sense of some of the strategies insurance industries use to gain competitive advantage. It also gives a sense of some of the major industry shifts.

No author. (2006). The Allstate Corporation at Goldman Sachs Financial Services Conference. Thomson Business Intelligence. Retrieved August 6, 2008 at http://www.insurancenewsnet.com/article.asp?n=1&neID=20071211560.2_319d071ffa3b0527

This piece is largely comprised of a speech by Allstate CEO Tom Wilson, and discusses many issues with regards to Allstate and to the insurance industry in general. This article provided a strong foundation for analyzing the insurance industry, Allstate, and Allstate's place within the insurance industry.

Nichols, Lisa. (2007). Insurance Agents Marketing Plan. Suite101. Retrieved August 6, 2008 at http://insurance.suite101.com/article.cfm/insurance_agents_marketing_plan

This piece outlines some of the potential components of a marketing plan that insurance agents could utilize. It provided some guidance in the formulation of the marketing plan, giving a sense of direction, and some specific strategies.

No author. (no date). Marketing Plan Guidelines. Vanderbilt University. Retrieved August 6, 2008 at http://mot.vuse.vanderbilt.edu/marketing/Team_Project/marketplanguide.html

This is an instructive article outlining the steps to creating a marketing plan, and the key components that a marketing plan should contain. This was utilized to help provide guidance as to the substantive content and structure of the marketing plan produced.

Findings from other Methodologies

The main methodology besides the literature review was the analyze the Allstate financial statements. This is a critical part of the information gathering process. Financial statements provide a glimpse into the company's operations that qualitative analysis cannot. Moreover, financials can be compared across companies within the same industry, giving a sense of Allstate's performance relative to their rivals.

The main theme of Allstate's business is stability. They had one tough year in 2005 due to claims arising from the 2005 hurricane season, but otherwise they have seen remarkable stability over the past five years. An analysis of the income statement shows just that one blip, but otherwise they have experience fairly slow revenue growth. Differences between Allstate's income statement and a typical income statement immediately reveal a key factor in the insurance industry. The revenue is broken down into premiums earned and investment income. This illustrates the dual nature of insurance companies as marketers of consumer products and as financial institutions earning money from investments.

The balance sheet shows similar stability, with the debt ratio barely moving over the past five years. The company has little in the way of short-term liabilities other than the claims that will be made. The last three years in particular have seen little change at all in the size and scope of Allstate's operations. Growth has been stunted, and the asset mix has changed little.

The financial ratios show Allstate to be in good financial health. They have, over the past five years, suffered a slower erosion of their top line compared to the industry average. They have grown earnings per share at a higher rate than the industry. Allstate is not as highly leveraged as their sector peers in property and casualty, though they are more leveraged than their insurance industry peers in general. Allstate has strong return on assets and return on equity than either their industry or sector peers, and has maintained a stable tax rate, which few in the insurance industry have.

The financial statements reveal a company with very stable operations. The last three years in particular have seen little change in any aspect of their operations. This indicates a mature industry, and a mature company. Combined with their size and scope, this hints at a saturation/proliferation strategy, forging competitive strengths based on market penetration and breadth of product offerings.

The other main alternate methodology used was to conduct an interview with an insurance industry agent about the business. We did not feel that the other research yielded sufficient information regarding the specific needs of an insurance agent. We felt we would strengthen that part of the marketing plan considerably with some first-hand knowledge of that aspect of the business. What we found from this interview is that an insurance agent can only rely partially on the name of the company. They must leverage their own contacts, and conduct their own marketing, in order to build a business.

This means that the agent's marketing plan must be complementary to the company's marketing plan. It must focus on the core competencies of the agent, but in order to be truly successful must also leverage the reputation and products of Allstate. The agent also has more budget constraints, since such costs largely come from their own pocket. They must be creative, network, and find new ways to reach people leveraging the Allstate name as much as possible and spending as little as possible of their own money.

Analysis

Some of the theories from the literature review proved valuable in the marketing plan, others did not. The SWOT analysis was the strongest of the theories in terms of its ability to translate directly to a marketing plan. It is a simple framework for internal and external analysis. This provided a good sense of the opportunities that were possible with the marketing plan, and how the plan could leverage the existing Allstate strengths to achieve those.

The gap analysis was useful only in a loose way. Allstate's operations are stable, and in a mature industry there is little sense in setting unrealistic objectives (for example, usurping State Farm for the #1 P&C insurer position). Incremental gains are the only realistic opportunity, so the gap was insignificant. This is not a company failing to meet objectives so much as it is a company content to make large profits from a stable operating position.

The measurement plan was useful. It stressed some of the basic components of measurement plans, and those were used in the formulation of Allstate's measurement plan. Success criteria as a concept was probably the least useful. One of the problems was that they were not anything more than common sense. Moreover, they overlapped too much with measurement plan and gap analysis. It is understood that each of these concepts is slightly different and that they complementary, but for Allstate the gap was too small, and the objectives too broad, to use these three tools with the degree of specificity hinted at in the literature review.

Generalizations

These learnings represent different tools to use in analyzing a business and its strategies. They are applicable across many different businesses. For Allstate, they were used to develop a rough marketing plan for both Allstate and an Allstate agent, for example.

SWOTs are a valuable tool for analyzing a firm's internal and external environments, and can be applied to any business entity. They ask you to view the firm in terms of what it does well, and how those competencies can be leveraged to take advantage of opportunities. Likewise it puts threats and weaknesses together. The result is that a SWOT guides strategic objectives, to either remove weaknesses that can be exploited, or to exploit strengths. These are universal, and any business can be evaluated with this tool.

The other tools are more bare bones, but in that regard they are also universal. The value is in having a formalized way to looking at these issues. They focus managers on the big picture. They are useful tools, but unlike the SWOT cannot be relied upon to guide strategy, nor can they be used without other complementing tools to enhance their value.

Conclusion

The literature review outlined several business analytical tools, and those proved useful in helping to formulate the strategy and then deal with the nuts and bolts of goal setting and measurement. This aspect of the project was valuable in that it largely formalized common sense, allowing for gaps in the thought process to be eliminated.

Other parts of the literature were more valuable. The insurance industry is fairly unique in terms of its structure, profit-making process and competitive environment. The industry and firm-specific information was critical in gaining an understanding of Allstate's place in the insurance business. This in turn aided the development of the SWOT from which flowed the marketing strategy.

Marketing Plan

Allstate is an insurance provider, operating primarily in the personal property and casualty insurance sector. Most of Allstate's business is domestic, with a small portion of operations based in Canada as well. Allstate reaches approximately 17 million households, and does so through an extensive network of dealers and agent. The network is some 14,900 large.

Allstate breaks down its business into four segments - Protection, Discontinued Lines and Coverages, Financial, and Corporate/Other. On its income statement, Allstate breaks out income from premiums and income from investment activities, illustrating the fundamental differences between the consumer insurance side of its business and the financial services side. The insurance business has generated premiums worth $29 billion in each of the past three years. While the revenue streams from insurance have been relatively steady, the investment business has generated consistently improving streams. In the past five years, those streams have increased from $4.9 billion to $6.4 billion. Total revenue has grown from $32.149 billion five years ago to $36.769 billion in 2007.

Despite these consistent revenue streams, Allstate has seen dramatic fluctuations in their net income. The main culprit was heavy hurricane-related losses in 2005, though 2007 also saw significantly higher losses than the year previous, cutting into the net income. All the same, the past two years have seen strong improvement in earnings per share over any of the previous five years. The losses on policies have generally been the sole culprit for fluctuations in net income. Operating expenses have remained steady over the past five years.

This stability is also reflected in the balance sheet. The debt ratio has remained steady, moving between 0.84 and 0.87 over the past five years. At the heart of Allstate's balance sheet are the long-term investments on the asset side. These are matched with policy liabilities on the liabilities side. Allstate tries to balance these two items so that they are within a billion or two of each other. Allstate's equity has remained steady over the past few years, even while the assets have increased by $22 billion. This is due to the policy of matching long-term investments and policy liabilities, which is the foundation of insurance company operations.

An analysis of Allstate's financial ratios shows that they have more stable operations than their industry and sector peers, and often outperform on most measures. The firm has grown revenues over the past five years at a rate of 4.45%, which is half the sector rate for property and casualty, but better than the rate for the insurance industry overall. They have grown earnings per share at a 30.36% clip over the past five years, a pace much stronger than either the industry or the sector.

Allstate's profit margins are about half of the sector average but much larger than the insurance industry as a whole enjoys. Their tax rate, however, is steady and is about half of what the sector pays. This shows a lot of stability in Allstate's operations. The ability to control taxes so much better than their peers helps to keep their bottom line results competitive. Allstate may not have the best margins, but they do enjoy strong results.

Clearly in Allstate's favor are their efficiency ratios. Their five-year average return on assets is 2.38%, versus a sector average of 1.25%. Their five-year average return on equity is 16.79%, versus a sector average of 9.23%. These results also consistently outperform the insurance industry as a whole. Further reflecting the internal efficiency of Allstate's operations, its revenue per employee is just one-quarter of the sector average, yet its net income per employee is 62% of the sector average. This shows that while Allstate does not generate much income per employee, they keep a greater percentage of what they generate. That gives them a basis from which to work - if they improve that revenue figure they will easily surpass the sector average net income per employee.

The stability of Allstate's performance and their relatively strong efficiency is recognized by the market. Allstate has consistently outperformed its industry and sector peers in terms of price/earnings ratio. Allstate's lowest P/E in the past five years was 5.92, which is significantly higher than the highest average industry or sector P/E in the same period. Allstate offers a consistently higher dividend yield and payout ratio than its competitors do.

Allstate appears to have reached a state of maturity. Several signs found in the financial analysis point to this.

The revenues have flatlined, with growth coming only on the investment side. The capital structure has also remained stable, a sign of a company with little inclination to growth. Dividend yields and payouts have been consistently higher than those of their peers. Allstate is much more efficient than their competitors, which points to a firm that believes efficiency improvements are the key to profit growth and the enhancement of shareholder value. This is again indicative of a firm that is operating at the "cash cow" stage of the business cycle. They no longer need to grow, they merely need to focus on efficiency and keep the profits coming.

Allstate's Products and Services

Allstate competes primarily in the personal property and casualty sector. They divide their business into four segments - Protection, Discontinued Lines, Financial, and Corporate/Other. Protection is the main line of business, accounting for 94% of its business. The two largest lines of insurance offered are private passenger auto and homeowners' insurance. They also market residential fire, boat owners, landlords, renters, and other personal insurance products. They offer similar products to small commercial enterprises.

In addition to insurance in the Protection category, Allstate offers retirement and other investment products, of which life insurance sometimes qualifies, under its Financial wing. Accident and health insurance products are offered, as are annuities. For institutions, they offer backing for medium term notes.

There is also an emergency road assistance program offered through this category. The other segments include the Discontinued Lines, which consist of all lines no longer offered. The Corporate/Other segment tracks non-core business items such as head office and other non-insurance operations.

Allstate markets its products through a sophisticated distribution system. At the core of the distribution system are the agents - 86% of revenues come from Allstate's own agencies. There are some 13,200 agencies in 12,300 locations in the U.S., with the rest located in Canada. Independent agencies are used in areas where Allstate does not have its own agent. The company has a couple of other brands besides its core Allstate brand, and those are typically sold through independent agents. There are 10,600 independent agents. They comprise a small portion of Allstate's total business, and typically sell the lesser brands. Allstate's annuities are offered through bank partners.

Allstate's Industry and Competitors

The insurance industry is highly fragmented and intensely competitive. This competition has resulted in the property/casualty business taking on some cyclical characteristics. Companies frequently engage in price competition in order to increase market share. This results in an increase in the number of premiums written, a stage that typically lasts 2-3 years. When rates drop far enough, profits diminish and capital no longer enters the market. At this point, the availability of insurance becomes tighter, causing rates to begin to increase. This stage of the cycle can last several years. The industry is currently in this stage, as evidenced by a lack of growth in net premiums written. From 1999-2002 approximately, there was a spike in premiums written, indicating loose insurance availability and lower rates. The present cycle being only a few years old is likely to continue for several more years, based on past cycles, which the Insurance Information Institute has tracked and charted to 1975.

Allstate faces dozens if not hundreds of competitors in each of its business lines. In the United States, the Insurance Information Institute estimates there are over 2600 competitors in the property/casualty business, and a further 1200+ in life/health. Many of these are part of larger entities, such as banks or other financial institutions. Allstate is not part of a larger entity. Each business line has its own group of competitors, some like Allstate operating in many lines, others specializing in just a handful. We shall examine the competitive marketplace for Allstate's most important businesses - homeowners, auto, life and annuities.

One of Allstate's key businesses in homeowners' insurance. The average homeowner insurance premium in the U.S. was $764 in 2005 and this figure had increased steadily since 1999. An estimated 96% of homeowners have homeowners insurance. Therefore the target market for homeowners insurance is all homeowners, with no particular demographic or geographic breakdown.

Allstate is #2 in homeowners' insurance, with an 11.9% market share, as of 2006. This means the market was worth approximately $61 billion. The industry leader is State Farm, with a 22.2% market share. Following Allstate are Zurich (7%), Nationwide (4.7%) and Travelers (4.3%). In total, the top ten homeowners' insurance companies own 64.2% of the market. The profit structure of the homeowners insurance is as follows: approximately 31% of premiums go to expenses (commissions, taxes, overhead, etc.); in 2006 58% went to settle claims, leaving 11% for profit. This means that Allstate took in profit of around $804 million on its homeowners business.

The auto insurance industry was worth $164.8 billion in 2006. In addition to liability insurance, 77% of drivers had purchased comprehensive insurance, and 72% bought collision coverage. The target market is all drivers, so again very broad-based. The average premium paid for automobile insurance was $829 in 2005.

Allstate is #2 in auto insurance, with an 11.1% share. The industry leader is State Farm, with an 18.0% share. Rounding out the top five are Progressive (7.3%), National Indemnity (Geico) (6.7%), and Farmers (4.9%). The top ten auto insurers held 63.8% of the market. Aside from Allstate and State Farm, no two competitors were in the top ten of homeowners and auto. The profit structure of auto insurance leaves profit of $8 per $100 of premiums, so from that we can extrapolate that Allstate earned profit of roughly $1.463 billion on its auto insurance business.

Life insurance is a slightly more complicated business, due to the variety of life insurance product categories and distribution channels. By number of individual whole life and endowment insurance policies issued in 2006, Allstate is the #13 competitor in life insurance. They averaged $128, 557 in insurance per policy, which was higher than many of their competitors. As a result, by amount of insurance issued they held the #8 position in the industry. Rival State Farm was #4 by number of policies, and #7 by amount of insurance issued. The leading firms are all life insurance firms, rather than property/casualty firms, though one other of those, Zurich, places #15 in life insurance by policies written and #11 by amount of insurance issued.

Therefore, overall it can be said that despite operating in many heavily fragmented segments, the leading competitor is State Farm, due to the number of different segments they share, so we shall provide a brief examination that company.

State Farm is a mutual insurance company, and therefore not publicly traded. They are the dominant player in the two main lines of the property and casualty segment in which Allstate operates as the #2. State Farm has been #1 in the automobile segment since 1942.

In addition to dominating the auto and homeowner segments, State Farm also competes in fire, reinsurance, health, mutual funds and banking. However, homeowners and auto account for 87.5% of their premiums written. They have 17,000 agents, compared with the approximately 14,000 of Allstate. As with Allstate, State Farm only competes in the United States and Canada.

In 2007, State Farm wrote $48.1 billion in premiums, for a gain of $621 million. State Farm made $4.6 billion on their investing business, for a profit of $5.1 billion. This represented a reduction from 2006 of 15%, which was steeper than the reduction Allstate registered (7.1%) in the same year.

Organizational Structure

Allstate is a public company, owned by shareholders. They have a staff of over 70,000, of whom some 14,900 are agents. This network of agents operates offices across the United States. These offices and agents are the primary interface between the company and their customers. In areas not served by an Allstate agent, they use independent agents, though the vast majority of their business comes from their own agents. They use other brands besides the Allstate name with the independent agents. They are 14 regional offices in the U.S., providing support for the agent network. In addition to the agents, customers can access products and information through a website and a toll-free phone line.

Agents in the Allstate network are entrepreneurs who market Allstate products exclusively. They have a high degree of autonomy over their business, including marketing and staffing decisions. In addition to training and product support, Allstate gives agents a set of business objectives to help drive the agent. Ultimately, though, the agents are expected to be self-motivated, and work diligently to generate business, leveraging both their own hard work and the Allstate name.

In terms of marketing, agents have considerable leeway. They set their own budgets, formulate their own strategies, and set their own targets. Allstate does make some contribution to the marketing. They provide a basic kit including signage and a web page. They also provide national marketing campaigns that can help draw business and build the brand.

Agents are remunerated with commissions, and the structure includes performance incentives. Allstate establishes the performance objectives themselves, and the incentives are there for agents who exceed Allstate's standards. Ultimately, the agents are tied to Allstate in many ways, but are able to conduct their own marketing. They must rely on their own business acumen and hard work to succeed.

The Current Market Situation

The insurance industry is cyclical, according to the Insurance Information Institute. Their chart shows that the cycle is presently strong for the insurers, meaning that they are able to write fewer policies, but more lucrative ones. This stage of the cycle has been underway for 3-4 years, and if history is any indicator should last a further 3-4 years. The opposite stage of the cycle has the insurance companies engaging in intense price competition, which allows them to write more policies, but make less money on each one. This competition is undertaken in an attempt to secure more market share.

The segments in which Allstate is most active are mature. The penetration level in auto is near total in basic coverage, and ranges between 72-77% for advanced levels of auto coverage. Homeowners' insurance is saturated, at 96% of homeowners covered. Other similar lines are less saturated, such as renter's insurance, but these markets have lower potential ceilings than home and auto.

The level of competition is intense. Margins are low, and profit in the industry is driven by volume. Moreover, each segment has hundreds of competitors, many of them very-well financed either as insurance companies primarily or as insurance arms of other financial services firms. At the top of each of these lines, the ten market leaders combine for over 60% share, which has two key implications for the intensity of rivalry. The first is that there remains dozens of other competitors in any given geographical market. The second is that among those ten leading competitors, competition can be expected to be fierce, as firms attempt to increase profits by carving out small gains in market share.

SWOT Analysis

The strengths of Allstate are its vast network of agents. They have built a client base some 17 million strong, and provide distribution across the nation. The agents are motivated by commission sales and the majority of them are proven. The network gives Allstate the capacity not only to increase sales of existing lines, but to leverage established relationships to move into other lines of business.