The Allstate Corporation Business Information, Profile, and History
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Northbrook, Illinois 60062
Consumer surveys indicate the insurance industry has a long way to go to satisfy customers completely. Customers want insurance to be friendlier and easier; they want the claims process to be fairer and more efficient; and they want their agents to be loyal and highly familiar with their needs.
Thus we've undertaken one of the most important initiatives in Allstate's history&mdashø generate faster, more profitable premium growth by aligning the entire company to deliver more of what customers say they want and need. We know the outcome will mean significant changes, over time, in the way we do business. But with our financial and organizational strength, we see these changes as tremendous opportunities for growth.
History of The Allstate Corporation
The Allstate Corporation is the holding company for Allstate Insurance Company, the second largest property and casualty insurance company by premiums in the United States. Allstate controls about 12 percent of the U.S. home and auto insurance market, second only to State Farm Insurance Companies. In addition, Allstate Life Insurance Company offers life, annuity, and pension products, and its Business Insurance offers select coverages for small and medium-sized businesses. Allstate's 20 million customers are served by 15,200 full-time "captive" agents, and thousands of independent agents, in the United States and Canada. Personal property and casualty policies account for over three-fourths of Allstate's revenue, while Life Operations account for 15 percent. In June 1993, Sears, Roebuck and Co. offered nearly 20 percent of Allstate's stock to the public in the largest initial public stock offering in U.S. history, making Allstate the nation's largest publicly held personal property and casualty insurance company. The remaining 80 percent of Allstate became publicly owned in 1995, when Sears spun the rest of the company off to its shareholders.
Formed in 1931
The idea for Allstate came during a bridge game on a commuter train in 1930, when insurance broker Carl L. Odell proposed to his neighbor, Sears, Roebuck and Co. president and CEO Robert E. Wood, the idea of selling auto insurance by direct mail. Odell suggested that selling insurance by mail could sharply reduce costs by eliminating commissions paid to salesmen. The idea appealed to Wood, and he passed the proposal on to the Sears board of directors, whose members were also intrigued by the concept. Allstate Insurance Company, named after an automobile tire marketed by Sears, went into business in April 1931, offering auto insurance by direct mail and through the Sears catalog. Lessing J. Rosenwald was Allstate's first chairman of the board, and Odell was named vice-president and secretary.
The company's early success proved Odell and Wood correct with regard to cost-cutting. Selling primarily through the regular Sears catalog, Allstate took in $118,323 in premiums on 4,217 policies in 1931, with a staff of 20 employees based at Sears headquarters in Chicago. Although the company showed underwriting losses in its first two years of operation, by 1933 it earned a profit of $93,000 from 22,000 active policies. That year, the first sale made by an Allstate agent was completed from a Sears booth at the Chicago World's Fair.
In 1934, Allstate opened its first permanent sales office in a Chicago Sears store, marking the beginning of a transition from direct mail to agents as its principal avenue of sales. The use of Sears stores enabled the company to keep a lid on costs even with the added expense of agents' commissions. Allstate's growth through the remainder of the Depression was slow but steady. By 1936, the company's premium volume had reached $1.8 million. Revenue from premiums more than tripled by 1941, reaching $6.8 million from over 189,000 policies in force. In 1943, James Barker was named chairman of Allstate's board.
The United States' participation in World War II slowed Allstate's growth somewhat, since automobile production and usage were curtailed. New legislation, however, helped pave the way for a period of explosive growth that the company would experience after the war's end. In 1941, when only about a quarter of U.S. drivers had auto liability insurance, a law was passed in New York firmly establishing the financial responsibility of drivers for damage or injuries resulting from auto mishaps. New York's law inspired a flurry of legislation in other states, and by the mid-1950s nearly every state had some sort of financial responsibility law on its books.
Postwar Boom Years
During the ten-year period after World War II, Allstate grew at a phenomenal pace, nearly doubling its size every two years. There were 327,000 Allstate policyholders paying premiums totaling over $12 million in 1945, and by 1955 Allstate's sales had risen to $252 million, with more than 3.6 million policies in force.
Growth was facilitated by a change in the company's structure that was implemented in 1947. That year, Allstate decentralized its operations, adopting a three-tiered structure. Research and policy development were conducted at Allstate's home office. Zone offices were created to interpret company directives, and in turn oversee the regional offices, where the programs were put into effect. Some regions were further organized into district service offices and local sales/service centers. The restructuring extended to the first foreign offices as well. Allstate became an international company in 1953 when its first Canadian office opened. Along with the restructuring, the 1947 introduction of the Illustrator Policy, which simplified the language of policies and added pictures to enhance customers' understanding of their coverage, facilitated growth.
During the 1950s, Allstate became more than an auto insurer. Throughout the decade, Allstate expanded its services to include the entire spectrum of insurance. Personal liability insurance was introduced in 1952. In 1954, Allstate began offering residential fire insurance. Commercial fire, personal theft, and homeowners insurance were all added in 1957. Through a subsidiary, Allstate Life Insurance Company, life insurance became part of the company's package in 1957 as well. In 1958, personal health and commercial liability insurance were added to the Allstate line. By the end of the decade, boat owners, group life, and group health insurance were all being offered. A new entity, Allstate Enterprises, Inc., was created in 1960 as an umbrella for a whole batch of non-insurance businesses to come. Among the activities eventually conducted under the Allstate Enterprises banner were a motor club and a number of finance operations, including vehicle financing, mortgage banking, and mutual fund management.
Allstate's now well-known slogan, "You're in Good Hands With Allstate," first appeared in 1950 after its creation by the company's general sales manager, Davis W. Ellis. By the end of the decade it was used in the company's first network television advertising campaign, which featured actor Ed Reimers.
Allstate's growth throughout the 1950s paved the way for continued growth over the next few decades. Not only did the company increase its sales volume but it increased its offerings and its operating space. In 1963, the Allstate Life Insurance subsidiary passed the $1 billion mark in insurance in force, after only six years of operation. By that time, over 5,000 agents were selling Allstate life, automobile, home, and business insurance. Two new subsidiaries, Allstate Insurance Company of Canada and Allstate Life Insurance Company of Canada, were formed the following year. In 1966, the Judson B. Branch Research Center (later renamed the Allstate Research and Planning Center) was opened in Menlo Park, California. The company's home office was moved to a new 723,000-square-foot complex in the Chicago suburb of Northbrook, Illinois, a year later. Meanwhile, Allstate continued to make additional types of insurance available to its customers throughout the decade, including worker's compensation insurance in 1964, surety bonds in 1966, ocean marine coverage in 1967, and a business package policy in 1969.
The 1970s: Diversification and International Expansion
By 1970, there were 6,500 Allstate Insurance agents. That year, Allstate unveiled a mutual fund. In 1972 Allstate entered the mortgage banking business by acquiring National First Corporation. The following year, the company purchased PMI Mortgage Insurance Company, marking its initial entry into that field. Around the same time, Allstate insurance became available through independent agents in rural areas not covered by agents working directly for the company. For 1973, Allstate generated earnings of $203 million, nearly 30 percent of parent company Sears's total.
The 1970s also saw Allstate increase its presence abroad dramatically. In 1975, the company entered the Japanese market through a joint venture (Seibu Allstate Life Insurance Company, Ltd.) and purchased Lippmann & Moens, a group of Dutch insurance operations. The remainder of the decade also included the formation of Tech-Cor, Inc., an auto-body research and reclamation firm, in 1976; the establishment of a Commercial Insurance Division (later called Allstate Business Insurance) to oversee the company's commercial operations in 1978; and the formation of a new wholly owned subsidiary, Northbrook Property and Casualty Insurance Company, in 1978. Allstate Reinsurance Co. Limited, a London Subsidiary of Allstate International, was incorporated in 1978. Two new policies, the Basic Homeowners Policy and the Healthy American Plan (life insurance), were introduced in 1978 and 1979, respectively.
Allstate was the sixth largest insurance group in the United States by 1980. At that time, the company was operating four zone offices, 31 regional offices, 219 claim-service offices, 687 automobile damage inspection stations, and 2,720 sales/service centers. For 1980, the company reported $450 million in net income on revenue of $6.2 billion, as well as assets of $10.5 billion and 40,000 employees. In 1981, two Dean Witter Reynolds insurance companies, Surety Life Insurance Company and Lincoln Benefit Life Company, became part of the Allstate Life Insurance group. Allstate, Dean Witter, and Coldwell Banker joined forces the following year to form the Sears Financial Network, first appearing in eight Sears stores and later expanding to many other locations.
Donald F. Craib, Jr., was named chairman of the board at Allstate in 1982. Under Craib, a major reorganization of Allstate's corporate structure was initiated. The "New Perspective," as it was called, entailed the elimination of zone offices, as well as other streamlining and decentralizing moves. A new, more flexible life insurance plan, the Universal Life policy, was also unveiled that year. By the end of 1983, Allstate's claim staff consisted of 12,500 employees, the largest force in the industry.
In 1985, Allstate rolled out its Neighborhood Office Agent (NOA) program. In its first year, the NOA program placed 1,582 agents in 944 locations. The following year, the company launched an extensive $30 million advertising campaign that included nine new television commercials and the creation of a new tag line: "Leave It to the Good Hands People." The campaign, which extended to print and radio as well, emphasized family protection. For 1986, the company reported income of over $750 million on revenue of $12.64 billion.
A number of business insurance developments took place at Allstate in 1987. First, the company's Commercial Insurance Division and Reinsurance operation were combined under the Business Insurance umbrella. In addition, two new programs were launched in that area. The "Topflight" program created special ties between the company's Northbrook subsidiary and certain independent agents. The STAR-PAK program offered a new business package policy that provided special services such as the delivery of price quotes within five hours. Allstate also launched the Allstate Advantage Program, a three-tiered rating system for auto insurance, in 1987. A new board chairman and chief executive officer, Wayne E. Hedien, was named in 1989.
Throughout the 1980s, the company had grown at a rate that could not be supported by its profits. It had roughly doubled its premiums during the decade, but in doing so it had burdened itself with a large number of high-risk policyholders. This growth had increased the company's costs both in terms of claims payouts and regular operating expenses. Meanwhile, the company also had to contend with customer backlash against insurance rates, including an ongoing court battle in California involving the 1988 passage of Proposition 103, which called for a rollback on premium rates. Allstate's income shrank from $946 million in 1987 to $701 million in 1990. Resolving Proposition 103 issues put some major concerns behind the company.
The 1990s: Natural Disasters and Spinoff from Sears
After a solid year in 1991, Allstate suffered losses from Hurricane Andrew in 1992 that obscured an otherwise outstanding year for the company. This natural disaster led to a net loss of $825 million for the year. Subsequently, an insurance crisis developed in Florida. The legislature was unable to enact a solution the following spring, and Allstate announced a plan to not renew some 300,000 Florida property customers living in high hurricane risk areas. A state-mandated moratorium on nonrenewals was imposed until November 15, 1993. On November 9, 1993, the Florida Legislature approved a catastrophe fund bill designed to protect insurance consumers and the insurance industry from the financial devastation caused by severe hurricanes. The bill enabled Allstate to renew about 97 percent of its Florida property customers in 1994.
In June 1993, 20 percent of Allstate was offered to the public. The offering was an extraordinary success, generating $2.4 billion in capital. That sum was the largest ever raised in an initial public offering in the United States. The separation of Allstate from Sears was part of Sears's new focus on its traditional business of merchandising. With newly found financial strength from the successful public offering, Allstate posted impressive numbers for 1993: a record net income of $1.3 billion on revenue of $20.9 billion.
A dip in profits followed in 1994, however, in the wake of another natural disaster which involved massive claims against Allstate. The Northridge, California earthquake, which struck in January, resulted in claims totaling over $1 billion. In its wake, as had happened following Hurricane Andrew, Allstate (and most other insurers) attempted to stop writing policies for homeowners' insurance in the state, and California eventually passed legislation creating a state Earthquake Authority to help pay future catastrophe claims.
Allstate became completely independent in June 1995, when Sears gave up its 80 percent stake in the company, distributing 350.5 million shares of Allstate stock to its own stockholders. Allstate also streamlined its operations, selling off the PMI Mortgage Insurance subsidiary to raise funds for corporate growth. A smaller hurricane in 1995, Opal, resulted in a more manageable amount of damage than Andrew, and the company's yearly totals were a record-setting $22.8 billion in revenues and $1.9 billion in income.
Concurrent with the positives of Allstate's independence and financial success, controversies were surfacing on a number of fronts. In Texas, the company's use of Allstate-run law firms to represent claimants in court was being examined, while in California Allstate was accused of falsifying engineering reports to minimize earthquake damage claims. In several other states, attorneys general were investigating allegations that the company was overcharging single car owners for auto insurance. Additional states were examining the practice of mailing out pamphlets to auto accident claimants which attempted to dissuade them from consulting an attorney. The company fought these and all such actions vigorously. Allstate, along with a number of other insurance carriers, was also accused of "redlining," or denying insurance to inner city and minority homeowners. In this case, the company announced it was making changes to its policy guidelines which would improve the opportunity for such customers to obtain in surance.
Strong years were again seen in 1996 and 1997, with record revenues and income posted in each. The company began trying new methods of insurance sales, using more independent agents and exploring the possibility of telephone or Internet sales. This was a delicate subject, as the 15,000 plus traditional full-time company agents were strongly opposed to such competition. Allstate also divested itself of several smaller subsidiaries and finished selling off its real estate holdings, a move which had been started in 1991. In late 1998 the company founded a bank, Allstate Federal, which it began to use to handle many of the company's own financial transactions.
In January 1999, a new CEO was installed, Edward M. Liddy. Liddy had been with Allstate only five years, following a longer stretch with Sears, but had quickly moved into the positions of president and COO, and was expected to closely follow the pattern set by his predecessor Jerry Choate. As the company approached the year 2000, it was as strong as it had ever been, and appeared likely to continue in that position for some time to come.
Principal Subsidiaries: Allstate Insurance Company; Allstate Life Insurance Company; Allstate Indemnity Company; Allstate County Mutual Insurance Company; Allstate Holdings, Inc.; Allstate International, Inc.; Allstate New Jersey Holdings, Inc.; Allstate Property and Casualty Insurance Company; Allstate Texas Lloyd's, Inc.; Deerbrook Insurance Company; Forestview Mortgage Insurance Company; Pinebrook Mortgage Insurance Company.
Principal Operating Units: Property-Liability; Life and Annuity; Investments.
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