Updated: 5/18/11 12:30 PM
The acquisition has been approved by both companies' boards of directors and is expected to close this fall. It also includes Answer Financial, an online-only insurance agency.
The deal will cost Allstate $700 million, plus the the tangible book value of the entities acquired at close, which could push it as high as $1 billion in total.
"Our strategy is to focus on individual preferences and utilize different value propositions for distinct consumer segments," Thomas J. Wilson, Allstate's president, chairman and CEO says in a statement. "Our Allstate agencies do an outstanding job of serving customers who want a local personal touch and prefer to purchase a branded product. Esurance will expand our ability to serve customers that are more self-directed but still prefer a branded product. Answer Financial will strengthen our offering to individuals who want to be offered a choice between insurance carriers and are brand-neutral."
In a conference call with investors, Wilson further outlined the strategic reason behind the acquisition. The company believes that insurance customers fall on a continuum, between "personal-touch loyalists" -- Allstate's current major base, who prefer working with an insurance agent -- and "self-directed" consumers who want to buy insurance online.
Further, he added, customers can either be brand-neutral or brand-sensitive. As Wilson explains, Allstate meets personal-touch loyalists who are brand-sensitive, while its existing subsidiary, Encompass, meets the needs of those personal-touch loyalists who are not.
Adding Esurance allows Allstate to reach brand-sensitive, self-directed customers, Wilson said, lauding the company's advertising and use of data-driven marketing. And, Answer Financial, in its position as an online aggregator, helps Allstate reach customers who are not brand-sensitive and also want a self-directed experience.
"We believe the right thing to do for customers is to give them what they want," Wilson said in the call. "We believe they are two distinct customer segments. We don't see that much conflict" between agents and the direct channel, he continued.
Wilson said that the company plans to continue Esurance and Answer Financial operations under their current brand names.
Allstate named Suren Gupta EVP of technology and operations -- the top tech post in the company -- earlier this year.
Nathan Golia is senior editor of Insurance & Technology. He joined the publication in 2010 as associate editor and covers all aspects of the nexus between insurance and information technology, including mobility, distribution, core systems, customer interaction, and risk ... View Full Bio