A Consistent Strategy
It’s my job to make sure Allstate has the right strategy,
people and infrastructure to seize our market opportunities.
This enables us to win in the marketplace and deliver the value
you expect. Sometimes, that means taking a bold new direction,
as we did five years ago when we reorganized our agency distribution
system, significantly increased our investment in technology
and initiated more sophisticated Tiered Pricing. Since then,
we’ve stayed the course, and the results have been terrific.
Over the last five years, you have seen compound annual growth
rates of 11.2 percent in operating income per diluted share
and 19.0 percent in your common stock total return.
In 2004 we focused on several key areas to improve profitability,
increase scale and financial strength and capture a larger share
of the insurance and financial services marketplace.
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Tiered Pricing helps ensure that Allstate
doesn’t trade profit for growth by identifying customers
who may generate high value over time. |
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More
precise underwriting helps us
segment customers, better match the premiums individuals pay
for the risks they represent and win profitable market share.
We continue to refine our Tiered Pricing models, which include
our Strategic Risk Management (SRM) tool, adding new and enhanced
variables as competitors continue to adopt tiered rating programs.
Tiered Pricing helps us attract customers that have the potential
to generate greater value over time, so we can compete vigorously
for their business. As we gain market share within this segment
and manage expenses carefully, we’re steadily building
a higher quality, increasingly profitable property and casualty
portfolio. The evidence: steady income growth and a Property-Liability
combined ratio that improved to 93.0 percent in 2004 from 94.6
percent in 2003. We expect to continue to benefit from our Tiered
Pricing as it expands for both auto and homeowners in 2005.
Allstate’s superior claim
management sharpens our competitive
edge in two important ways. It creates loyalty by forging strong
bonds with consumers during their time of need. It also protects
our company’s assets – and contributes to profitability
– by more effectively managing loss costs, keeping those
costs below industry averages. In 2004 we delivered on our claim
promises, improving our claim satisfaction ratings while sustaining
our severity advantage versus the industry overall. And since
1996 our bodily injury claim experience has averaged 14 points
lower than the industry overall, a significant competitive advantage.
This performance testifies to our efficient claim operations,
but it’s not enough. Our Next Generation Claim System
program, now under development, will help us build on our already
strong claim performance while also giving customers an even
better claim experience.
Allstate Protection’s
powerful distribution engine gives
us the scale to reach consumers across the country. In 2004
we invested in national and local marketing and advertising
to raise our visibility and drive sales across our exclusive
agent, independent agent and direct channels. We worked on several
fronts to support some 70,000 employees, agency owners and their
licensed sales professionals, and financial specialists whose
knowledge and experience we depend on to exceed our customers’
expectations.
For example, to reinforce our relationship with exclusive agents,
we established an agency advisory board to help us solve key
business issues. We restructured their compensation plans to
better align agency success with the company’s mission.
We invested in education, technology and operational support
to help them grow their agencies. The increase in exclusive
agents and support staff of 11.7 percent in 2004 demonstrates
that Allstate delivers a strong value proposition to our agency
channel.
We also expanded our relationships with independent agents.
This segment of the market currently generates approximately
one-third of all U.S. personal lines premiums. Simpler processes
and highly competitive pricing will help us win a much greater
share of their business.
In addition, our direct channel – which complements our
exclusive agency network to deliver convenience and local support
– handled more than 6.5 million sales or service calls,
and supported 32 million visits to allstate.com and more than
8 million self-service transactions.
At Allstate Financial,
we have a growing opportunity to help middle- and upper-income
customers achieve long-term financial security. We have one
of the strongest distribution networks in the industry –
more than 13,000 Allstate agents and Exclusive Financial Specialists,
as well as nearly 50,000 producing broker dealers, financial
institutions, independent agents and financial advisors. They
have helped us become one of the largest companies in the financial
services industry, with more than $94 billion in assets. In
2004 we achieved record retail, institutional and total Premiums
and Deposits. New sales of financial products by Allstate exclusive
agencies increased 24.0 percent to $2.27 billion in 2004, and
have grown at a compound annual rate of 53.0 percent since 2000.
And we made solid progress toward becoming an operationally
excellent product manufacturer, thus establishing a strong foundation
to accelerate profitable growth. We will continue to make it
easier to do business with us and focus on fewer products that
are developed from a common platform to achieve greater scale
and profitability. We will also deepen relationships with our
most profitable and productive distribution partners, streamline
processes and leverage technology to improve overall effectiveness
and efficiency. We expect this strategy – of simplifying,
standardizing and strengthening our business – will help
us achieve the necessary scale to increase operating income
in the future. (Continue Chairman’s Letter...)
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