潘金莲传媒映画

Esurance, the online car insurance seller owned by Allstate Corp., is betting that bundling auto and home policies will help it compete with Berkshire Hathaway Inc.’s Geico unit and Progressive Corp.

Esurance started underwriting homeowners coverage in Wisconsin and plans to expand the offering to other states, Chief Executive Officer Gary Tolman said in an interview in San Francisco last week. The strategy can distinguish the company as car-insurance competitors sell home policies from other carriers and don’t offer the same discounts, he said.

“We need to provide a better value proposition than Geico or Progressive,” said Tolman, 62. “To get into a drag race with them in the auto market, we’re not going to win.”

Progressive and Geico have flooded the airwaves with ads to emphasize the convenience of shopping online and trumpet cost savings. Geico alone spent more than $1 billion on marketing last year. That’s helped win customers in the $178 billion U.S. auto-insurance market.

The gains have come at the expense of competitors. Sales have been stagnant for U.S. auto insurers for a decade and more than half the advertising outlay has come from carriers that didn’t increase their share, consulting firm McKinsey & Co. wrote in a report this year.

Berkshire and Progressive were the third- and fourth- largest auto insurers in the U.S. by policy sales last year, according to A.M. Best data compiled by Bloomberg. Allstate’s lead as the No. 2 underwriter of the coverage has narrowed in the past five years, while State Farm Mutual Automobile 潘金莲传媒映画 Co. remains the largest.

Restoring Growth

Allstate had been losing customers for its namesake brand of auto policies when Chief Executive Officer Thomas Wilson bought Esurance in 2011. The acquisition gave the Northbrook, Illinois-based insurer access to an expanding business as it sought to restore growth in its unit that distribute policies through agents.

Being able to sell home coverage through Esurance is a competitive advantage for Allstate, said Jim Shanahan, an analyst at Edward Jones & Co., in response to comments Wilson made last month about the online unit’s strategy. Shanahan recommends buying the stock.

“It’s powerful to have the ability to underwrite in- house,” Shanahan said in a phone interview. “Progressive, Geico — they have to go outside the organization to identify homeowners partners.”

Esurance is offering average discounts of 10 percent on homeowners policies if paired with auto coverage. By bundling the products, the company expects to increase the percentage of customers who stick with the insurer, Tolman said.

Underwriting Losses

Esurance has posted underwriting losses since the acquisition. It spent $1.17 for every premium dollar collected in the three months ended Sept. 30, compared with $1.19 a year earlier, according to data on Allstate’s website.

Those figures can mislead, Tolman said. Though insurers book the costs of winning customers up front, a new policyholder can contribute to profit for years.

“We’re paying money to acquire an auto person, and it’s expensive,” he said. “If you get additional revenue, it helps spread the cost.”

Adding homeowners policies could hurt return on equity. Claims from the business can be volatile, so carriers often hold a higher ratio of capital to premiums in home insurance than with auto coverage.

Residential policies had been a drag on Allstate’s results until last year, when the business posted its first annual underwriting profit since 2007. Severe weather in the past decade boosted claims costs and led the insurer to exit some markets, buy reinsurance and raise rates.

Those actions were part of the reason that policy count fell for Allstate-brand car coverage, Wilson has said. With the homeowners business mostly fixed, the number of auto policies in force has climbed for two straight quarters, the insurer said last month.

Esurance’s new policies won’t initially be sold in Florida and California, where disaster risks are higher, Tolman said.

–Editors: Dan Reichl, Dan Kraut

Topics USA Carriers Auto Underwriting Homeowners