Allstate Insurance Marketing Plan: Strategy and Analysis

Introduction and Project Overview

This project develops a marketing plan for Allstate, one of the largest insurance companies in the United States. Allstate competes across most segments of the insurance industry, and in 2007 reported revenues of $36.769 billion and profits of $4.6 billion. Creating a promotional plan for Allstate presents an interesting challenge: the company operates in so many segments and serves such a broad target market that the marketing plan must be both wide-ranging and reasonably well targeted. It must be wide-ranging in order to drive business across all of the company's lines and to market the company itself rather than any single segment. It must be well targeted in order to prevent competitors from exploiting a lack of focus on Allstate's part.

There are several steps to completing the marketing plan. The first is to conduct a literature review — one that is sweeping enough to provide tools for analyzing the insurance industry, its segments, and their target markets. The review should also offer insight into the development of an effective marketing plan. For this project, the marketing plan itself comprises two distinct components: a plan for Allstate as a corporation, and a plan for an individual Allstate agent. Because these represent two distinct plans, the research must supply sufficient information to address both topics equally well.

The literature review is then analyzed and its findings recorded. Those findings ultimately provide the basis for the marketing plan. This process is a formalized version of what every marketer does during the preparation stage. At this point, information from both the literature review and any supplementary research is synthesized into a coherent analytical foundation.

The project also has a reflective dimension. Beyond producing the plan itself, the exercise aims to identify generalizations that can inform future marketing plans. As valuable as creating one plan is, it is equally valuable to develop skills and knowledge that can be applied to future marketing endeavors. The process is as important as the results — while the results are a plan on paper, the process is a repeatable tool.

Ultimately, three distinct outcomes are sought. The first is a marketing plan for Allstate as a multi-billion dollar insurance company with an incredibly broad scope. The second is a marketing plan for an individual Allstate agent, a unique business entity with its own needs and objectives. The third is to develop a research and writing methodology, along with a body of knowledge, that can be applied consistently across different industries and business models. In achieving these three outcomes, the project aims to build a stronger understanding of the fundamentals of marketing planning and the steps involved in creating such a complex document.

Research Methodologies

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

The starting point was to understand the insurance industry. The industry is vast, and two potential entry points presented themselves. The first was to find an outside source of industry research. This led to a common roadblock in the business world: a significant portion of business research is produced on a for-profit basis. The intended audience is business, and that audience uses the information to generate profits — so it stands to reason that such research carries a price. As students, paying hundreds of dollars for proprietary research was not feasible, meaning industry information had to be gathered piecemeal from other sources.

This led to the second potential starting point: internal industry sources. Like many industries, the insurance industry has an association established by member firms as a communications and advocacy tool. In this case, the Insurance Information Institute provided a wealth of free information online, presented in a number of formats — overview, segment-specific, and geographic — that proved extremely useful.

With industry knowledge in hand, the next step was to understand Allstate's operations and how they fit within the insurance industry. Before beginning that process, the relevant learning objectives were identified, starting with the SWOT analysis. Like other standard business analytical tools, the SWOT provides a framework for understanding a company. The first step was therefore to gain a keener understanding of how the SWOT works and what its desired outcomes should be, in order to guide company research by focusing on the areas of greatest relevance.

The next step was to learn about other tools that could complement the SWOT. Reading about the structure and objectives of the SWOT provided significant guidance on what additional information about Allstate would be needed. It became clear that the internal and external environment were critical, but that the SWOT would inevitably leave gaps. A search of management and strategy literature surfaced other tools: ratio analysis, for example, helps understand a company through evaluation of its financial statements, providing a quantifiable view that complements the SWOT's qualitative focus. Other tools examined included gap analysis, measurement plans, and the formulation of success criteria.

The SWOT analysis is fundamentally a tool for analyzing the internal and external environment. It focuses on a company's internal strengths and weaknesses alongside external threats and opportunities. Its value lies in allowing these elements to be weighed against one another — not simply strengths versus weaknesses, but also strengths applied to opportunities and weaknesses considered alongside threats. The most important strategic priority is to ensure that external threats do not exploit areas of internal weakness, since the consequences could be severe. Beyond shoring up weaknesses, a SWOT examination reveals where strengths can be used to exploit market opportunities.

Gap analysis offers another angle of perspective on a business's operations. It examines two dimensions — where the company is and where it wants to be — and then investigates the reasons for any gap and how those reasons can be addressed. The ultimate goal is to narrow the gap and bring the company closer to its objectives.

Measurement plans outline the ways in which a company can assess the outcomes of its strategic initiatives. For the purposes of a marketing plan, this means measuring the outcomes of the marketing program against an ideal derived from the gap analysis. Success criteria flow from the gap analysis and define what success looks like, while measurement plans specify how the company determines whether those criteria are being met. Together, these three tools allow a firm to assess a plan's effectiveness and adjust strategies in real time.

From there, information about Allstate itself was gathered. The company's annual report was the natural starting point, though it cannot be considered an entirely neutral source — securities regulators require conservative statements, but parsing the unique language of annual reports requires experience. The annual report was supplemented with financial news sources, which provide the detailed, accurate, and timely information that money, rather than academic reputation, demands. Academic sources, while occasionally useful for broad industry issues, seldom provide sufficient or timely insight into a company's specific operations.

A similar process was then applied to understanding the role of the individual insurance agent. Because individual agents are not publicly traded, the same body of freely available financial information does not exist for them. Research was therefore conducted via the Internet, drawing on tips and guidance aimed at insurance agents and analogous small-business models such as investment advisors and real estate agents. Finally, sources explaining how to structure a marketing plan were consulted, with multiple "how-to" resources used in order to triangulate the most important common elements.

Research Findings and Literature Review

The following sources were consulted in the preparation of this project, along with a brief account of how each was used.

Commercial Insurance 2008 (Insurance Information Institute, 2008): This handbook, published by the leading insurance industry association, outlines and provides statistics regarding the insurance industry. The Institute's website offers supplementary pages and publications breaking these figures down into specific industry segments and geographic regions. This information was valuable for understanding the segments of the industry, where opportunities may lie, and other macro-level business considerations, as well as the products that insurance companies offer.

Considerations in Writing Success Criteria (University source, no date): This article outlines the components of effective success criteria — specifically how to write criteria that are observable, measurable, and attainable. Though geared more toward individual employees, the principles translate directly to a marketing plan context.

Gap Analysis (University source, 2008): This article briefly explains the concept of gap analysis, what successful gap analysis should look like, and what its limitations are. From this foundation, the concept was adapted to Allstate and the insurance industry.

Barr, Stacey. How to Make Your Performance Measurement Plan Realistic (ArticleBase, 2008): This article gives practical tips on performance measurement plans and their relationship to gap analysis. It was useful for understanding performance measurement as a critical component of a marketing plan.

SWOT Analysis (QuickMBA.com, 2007): This article walks through the steps of a SWOT and illustrates why conducting one is important. It aided in understanding the types of issues to consider when undertaking a SWOT analysis and in interpreting the results of the SWOT conducted on Allstate.

Rogers, Johannah. Six Keys to B2C E-Commerce Success (Insurance & Technology, 2001): This article outlines key issues surrounding the use of the Internet by insurance companies to reach consumers, and provides six keys to success for incorporating the web into a marketing strategy. It helped identify core issues insurance companies must consider when developing the e-commerce component of their strategies.

Allstate's website and its auto insurance comparison pages were examined as examples of how Allstate uses its online presence to compete, revealing strategies and key competitive points common across the industry.

Allstate's financial statements and key ratios sourced from Reuters provided a picture of the company's financial health relative to its industry and sector competitors. These figures indicated relative strengths and weaknesses, aiding in the preparation of the SWOT.

An Allstate profile from WikiInvest outlined the company's operations and gave a sense of how the industry is structured and how firms within it compete, which was valuable both for the SWOT and for broader industry understanding.

A 2002 PR Newswire article on the convergence of banking and insurance industries discussed Allstate's strategy for penetrating the banking market and gave a sense of some of the major industry shifts and competitive advantage strategies companies employ.

A 2006 Thomson Business Intelligence piece largely comprising a speech by Allstate CEO Tom Wilson provided a strong foundation for analyzing Allstate, its industry, and its position within that industry.

Nichols, Lisa. Insurance Agents Marketing Plan (Suite101, 2007): This piece outlines potential components of a marketing plan for insurance agents, providing guidance and specific strategic directions for the agent-level portion of this project.

Marketing Plan Guidelines (University source, no date): This instructive article outlines the steps to creating a marketing plan and the key components such a plan should contain. It was used to guide the substantive content and structure of the marketing plan produced here.

Beyond the literature review, the primary supplementary methodology was the analysis of Allstate's financial statements. Financial statements provide a view of a company's operations that qualitative analysis cannot, and they allow for cross-company comparisons within the same industry.

The main theme of Allstate's business is stability. They experienced one difficult year in 2005 due to claims arising from the hurricane season, but have otherwise shown remarkable stability over the past five years. Revenue is broken down into premiums earned and investment income, illustrating the dual nature of insurance companies as both consumer product marketers and financial institutions earning returns from investments.

The balance sheet shows similar stability, with the debt ratio barely moving over five years. The last three years in particular saw little change in the size and scope of Allstate's operations, and growth has been modest. Financial ratios show Allstate in good financial health: revenue growth has been slower than the sector average for property and casualty, but stronger than the insurance industry overall. Earnings per share have grown at a substantially faster pace than either peers or the sector. Return on assets and return on equity both consistently outperform industry and sector averages. This overall picture hints at a saturation and proliferation strategy, with competitive strengths built on market penetration and breadth of product offerings rather than rapid expansion.

The other main supplementary methodology was an interview with an insurance industry agent. The existing research had not yielded sufficient information about the specific needs of an insurance agent, so first-hand knowledge was sought to strengthen that portion of the marketing plan. The key finding was that an insurance agent can only partially rely on the company's name. Agents must leverage their own contacts and conduct their own marketing in order to build a business. This means the agent's marketing plan must be complementary to the company's plan — focused on the agent's own core competencies, but also leveraging the reputation and products of Allstate as much as possible while spending as little of their own money as necessary.

Marketing Plan: Allstate Corporation

Allstate is an insurance provider operating primarily in the personal property and casualty insurance sector. Most of its business is domestic, with a small portion based in Canada. Allstate reaches approximately 17 million households through an extensive network of approximately 14,900 agents and dealers.

Allstate breaks its business into four segments: Protection, Discontinued Lines and Coverages, Financial, and Corporate/Other. On its income statement, Allstate separates income from premiums and income from investment activities, reflecting the fundamental difference between the consumer insurance side of its business and its financial services operations. The insurance business generated premiums of approximately $29 billion in each of the past three years, while investment revenue has grown from $4.9 billion to $6.4 billion over five years. Total revenue grew from $32.149 billion five years ago to $36.769 billion in 2007.

Despite consistent revenue streams, net income has fluctuated significantly, driven primarily by heavy hurricane-related losses in 2005 and elevated losses in 2007. Operating expenses, however, have remained steady throughout, and the past two years have seen strong earnings per share improvement. The balance sheet reflects the same stability: the debt ratio has moved between just 0.84 and 0.87 over five years, and long-term investments on the asset side are closely matched with policy liabilities, which is the foundation of insurance company operations.

Financial ratio analysis confirms that Allstate operates more stably than its industry and sector peers and frequently outperforms on most measures. Revenue per employee is one-quarter of the sector average, yet net income per employee is 62% of the sector average — meaning Allstate keeps a greater percentage of what it generates. Its price-to-earnings ratio has consistently outperformed both industry and sector averages, and its dividend yield and payout ratio are consistently higher than those of competitors. These signs collectively point to a company that has reached maturity and is operating in "cash cow" mode, prioritizing efficiency and profit stability over growth.

Allstate competes primarily in the personal property and casualty sector. Protection is the main line of business, accounting for 94% of revenues. The two largest product lines are private passenger auto insurance and homeowners' insurance. Allstate also markets residential fire, boat owners, landlord, renters, and other personal insurance products, as well as similar products for small commercial enterprises.

Under its Financial segment, Allstate offers retirement and investment products, life insurance, accident and health insurance, and annuities. For institutional clients, it offers backing for medium-term notes. An emergency road assistance program is also offered. The Discontinued Lines segment covers all lines no longer offered, and the Corporate/Other segment tracks non-core items such as head-office operations.

Allstate markets its products through a sophisticated distribution system. Approximately 86% of revenues come through Allstate's own agencies — some 13,200 agencies in 12,300 U.S. locations plus additional Canadian locations. In areas without an Allstate agent, independent agencies are used, typically selling Allstate's secondary brands. There are approximately 10,600 independent agents. Annuities are offered through bank partners. Customers can also access products and information through the company's website and a toll-free phone line.

The U.S. insurance industry is highly fragmented and intensely competitive. This competition has given the property/casualty segment cyclical characteristics. Companies frequently engage in price competition to increase market share, driving a cycle of lower premiums and higher policy volumes that typically lasts two to three years until profits diminish and capital exits the market. At that point, insurance availability tightens and rates begin to rise again — a stage that can last several years. The industry was in this latter, more favorable stage at the time of writing, as evidenced by a lack of growth in net premiums written.

Allstate faces dozens, if not hundreds, of competitors in each of its business lines. The Insurance Information Institute estimates more than 2,600 competitors in the property/casualty business alone, and over 1,200 in life and health. In homeowners' insurance, Allstate holds an 11.9% market share, making it the #2 player behind State Farm's 22.2%. The top ten companies in the homeowners segment collectively hold 64.2% of the market. In auto insurance — a market worth $164.8 billion in 2006 — Allstate again holds 11.1% share, again behind State Farm at 18.0%. In life insurance, Allstate ranks #13 by number of policies issued, though it moves to #8 when ranked by amount of insurance issued per policy.

Because State Farm appears as the dominant competitor across multiple segments, it warrants closer examination. State Farm is a mutual insurance company and therefore not publicly traded. It has been #1 in the auto insurance segment since 1942 and also dominates homeowners' insurance. In 2007, State Farm wrote $48.1 billion in premiums and earned $5.1 billion in profit, representing a 15% reduction from 2006 — a steeper decline than the 7.1% reduction Allstate registered in the same year. State Farm operates approximately 17,000 agents, compared with Allstate's approximately 14,000, and like Allstate competes only in the United States and Canada.

Allstate is a publicly traded company with a staff of over 70,000. Its network of agents — the primary interface between the company and its customers — operates offices across the United States, supported by 14 regional offices. Agents in the Allstate network are entrepreneurs who market Allstate products exclusively. They have a high degree of autonomy over their businesses, including marketing and staffing decisions. Allstate provides training, product support, and business objectives to help drive agent performance, but ultimately agents are expected to be self-motivated and to generate business by leveraging both their own efforts and the Allstate brand.

In terms of marketing, agents have considerable leeway: they set their own budgets, formulate their own strategies, and set their own targets. Allstate contributes a basic kit including signage and a web page, and runs national marketing campaigns that help build the brand. Agents are remunerated through commissions, with performance incentives for those who exceed Allstate's standards.

The insurance industry is cyclical. At the time of writing, the cycle was favorable for insurers — they were able to write fewer but more lucrative policies, a stage that had been underway for three to four years and, based on historical patterns, was expected to continue for a further three to four years. The segments in which Allstate is most active are mature: auto insurance penetration is near total for basic coverage and ranges from 72–77% for advanced coverage levels; homeowners' insurance stands at 96% saturation. Other lines, such as renters' insurance, are less saturated but represent lower-ceiling markets.

The level of competition is intense. Margins are low, and profit in the industry is driven by volume. Each segment has hundreds of well-financed competitors, many backed by larger financial services firms. Among the top ten market leaders in any given segment, competition is fierce, as firms attempt to carve out small gains in market share to improve profits.

Allstate's primary strength is its vast agent network, which has built a client base of approximately 17 million and provides distribution across the nation. Agents are motivated by commission-based compensation, and the majority are proven performers. 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.

A second strength is the company's reputation. Allstate has been in business since 1931 and has built solid standing among its customers for service and reliability. A third strength is managerial efficiency: Allstate's financial statements reveal strong cost controls and a business model geared toward stability. The company generates profits through efficiency rather than consistent growth, and its model effectively motivates agents. In short, Allstate is well prepared to operate in a mature, intensely competitive industry.

In terms of weaknesses, Allstate's size relative to State Farm is a primary concern. As a clear industry #2, this gap can influence consumers' decisions. Allstate also lacks full U.S. coverage: roughly 10,000 independent agents sell Allstate products under different brand names rather than as dedicated Allstate agents, meaning those regions are unlikely to receive the same level of marketing effort. A further weakness is Allstate's apparent difficulty in moving beyond its core businesses — homeowners and auto still account for almost all of its business, and the company has not made a significant impact in most of its other lines.

Opportunities are limited in a mature market, but they do exist. Allstate can still grow in certain segments of the property and casualty business. The core auto and homeowners markets may be saturated, but other P&C segments are not, offering some growth potential without requiring a departure from existing strengths.

The most significant threat is competition. The industry's intense competitive environment periodically produces cycles of price competition in which smaller competitors — especially those backed by larger financial services companies — cut prices to gain market share, hurting the margins or market share of established players like Allstate. A second key threat is natural disasters, particularly hurricanes. The 2005 hurricane season proved especially costly, and Allstate has since moved to reduce its exposure in Florida as a result.

From Allstate's perspective, the objective is straightforward: improve market share. Operating in mature markets with no near-term indication of expansion into new ones, market share is the primary lever available for profit growth. Specific goals should be realistic — in Allstate's two key segments it currently holds shares of 11–12%, and at its size, realistic growth is incremental rather than transformational (absent acquisitions). The marketing plan should therefore be conservative, targeting 1% improvements per annum. This level of market share improvement could add approximately $2.2 billion in revenues from the two main business lines.

Allstate currently spends approximately 16% of revenues on policy acquisition costs, including all commissions and marketing efforts. Presuming just 1% of revenues is allocated to marketing gives a budget of approximately $470 million for corporate-wide marketing for the year.

The breakdown of that budget is as follows: $50 million for agent support, including web hosting, signage, and promotional materials (approximately $3,000 per agent plus related head-office expenses); $100 million for television advertising, the majority of which covers airtime; $100 million for newspaper advertising, concentrated in large national publications; $50 million for radio spots; $50 million for Internet advertising, including sponsored search links for insurance-related queries; $50 million for promotions to external and independent agents and to bank partners who market Allstate annuities; and $70 million held as a contingency for damage-control advertising, miscellaneous expenses, and cost overruns.

Tracking a marketing plan's progress is always challenging, and Allstate faces a particular difficulty: its target market is essentially everyone, and its campaigns are correspondingly broad. The closest approximation to a control group is the previous year's marketing plan, which is reasonable given the stability of Allstate's business.

The time frame for measurement should be quarterly. While waiting a full year to assess results would allow the complete picture to emerge — consumers typically purchase policies in annual increments, meaning purchasing decisions may lag campaign impact by several months — the scale of the budget demands closer tracking so that the campaign can be adjusted if needed. The two primary quantifiable measures are market share and revenue growth. No qualitative measures will be used to determine success, though they may be used to diagnose the reasons behind success or failure.