December 15, 2009

Is the Auto Insurance Industry Recovering from the Recession?

While nearly everybody living in this bad economy has struggled, the auto insurance industry has been hit especially hard. So, is the auto insurance industry recovering from the recession? Two prime auto insurance companies beg the question.

Allstate Corp., the largest publicly traded personal lines insurer, has been trying to formulate a plan to keep itself afloat. Recently, the company has announced a few changes to adapt to the changing preference of customers. “Our goal is to have fewer, larger agencies that provide a more consistent experience for our customers,” said Thomas J. Wilson, chief executive of Allstate. He said that insurers who have traditionally used agents to bring in policyholders have to adapt to increased Internet use, which has a growing appeal for policyholders. Wilson estimates that nearly half of their policyholders initially make contact using Allstate’s easy-to-use website, rather than going through an individual agent to obtain coverage. To make sure they take advantage of that trend, those at Allstate are adjusting to accommodate customer preferences.

Wilson estimated that around 87 percent of Allstate’s Website prospects end up closing the deal with an agent. Therefore it is understandable why another big part of Allstate’s plan indicates the use of fewer agents with an “enhanced” local presence and consistent operations, as opposed to larger current agencies that may seem more impersonal. The presence of agencies, as opposed to completely depending on the Internet, is crucial to assist those customers who prefer dealing with an actual person. This face-to-face interaction gives agents the opportunity to offer other Allstate products, such as life insurance, which can obviously increase Allstate’s profits. “This would strengthen our agency force and ensure [the agents] remain a significant part of how we serve customers,” said Wilson. Shares of Allstate recently traded down 1.7 percent to $27.80 amid a generally down market for insurers

Also hit hard by the recent turn of events has been top insurance provider, Progressive. Auto insurance premiums rose for Progressive Corp. (PGR) in November from the previous year, as did the number of policies. Progressive said its November net profit was 80 million dollars. These numbers are down 42 percent from November 2008, when sales of securities boosted Progressive’s investment gains by more than $100 million. November premiums rose 2 percent from last year to $942.1 million, but total personal lines policies rose even more, up 5 percent to 10.97 million. This increasing numbers suggested a combination of sluggish prices, customers cutting back on coverage, and people holding back on buying more expensive vehicles to insure.

It seems the auto insurance industry is doing everything it can to make sure it stays on its feet and is able to offer consumers decent auto insurance rates.