Allstate 2013 Annual Report Download - page 146

sophisticated pricing to increase our price competiveness to a greater share of target customers. A combination of
underwriting information, pricing and discounts are used to achieve a higher close rate on quotes. We will also use these
factors on our non-standard business to offer competitive prices to customers with risk profiles indicating greater
likelihood of renewal.
We also continue to enhance our pricing to attract a larger share of customers. For the Allstate brand auto and
homeowners business, we continue to shift our mix towards customers that have better retention and thus potentially
present more favorable prospects for profitability over the course of their relationship with us. For homeowners, we
continue to address rate adequacy and improve underwriting and claim effectiveness. We also consider various
strategic options to improve our homeowners insurance business returns.
Allstate brand also includes Emerging Businesses which comprises Consumer Household (specialty auto products
including motorcycle, trailer, motor home and off-road vehicle insurance policies and specialty property products
including renter, landlord, boat, umbrella, manufactured home and condominium insurance policies), Allstate Roadside
Services (roadside assistance products), Allstate Dealer Services (guaranteed automobile protection and vehicle service
products sold primarily through auto dealers), Ivantage (insurance agency) and Commercial Lines (commercial
products for small business owners). Premiums written by Emerging Businesses were $2.56 billion in 2012 compared to
$2.49 billion in 2011.
Our strategy for the Encompass brand centers around our highly differentiated product that simplifies the insurance
experience through an expanded coverage single annual policy with one premium, one bill, one policy deductible and
one renewal date. It appeals to customers with broad personal lines coverage needs who prefer an independent agent.
As part of its package policy strategy, Encompass is focused on increased agency engagement through ease of doing
business initiatives and increased package commissions, and de-emphasizing mono-line auto and property products.
Our strategy for the Esurance brand focuses on self-directed and web-savvy consumers. To best serve these
customers, Esurance develops its technology and website to continuously improve its hassle-free purchase and claims
experience. Esurance began offering renters insurance in 2012 and plans to continue to broaden its product offerings.
Esurance is also focused on increasing its preferred driver mix, while raising advertising investment and marketing
effectiveness to support growth.
We continue to manage our property catastrophe exposure with the goal of providing shareholders an acceptable
return on the risks assumed in our property business and to reduce the variability of our earnings. Our property business
includes personal homeowners, commercial property and other property insurance lines. As of December 31, 2012, we
are below our goal to have no more than a 1% likelihood of exceeding average annual aggregate catastrophe losses by
$2 billion, net of reinsurance, from hurricanes and earthquakes, based on modeled assumptions and applications
currently available. The use of different assumptions and updates to industry models could materially change the
projected loss. Our growth strategies include areas previously restricted where we believe we can earn an appropriate
return for the risk and as a result we may move closer to our goal in the future. In addition, we have exposure to severe
weather events which impact catastrophe losses.
Property catastrophe exposure management includes purchasing reinsurance to provide coverage for known
exposure to hurricanes, earthquakes, wildfires, fires following earthquakes and other catastrophes. We are also working
for changes in the regulatory environment, including recognizing the need for better catastrophe preparedness,
improving appropriate risk-based pricing and promoting the creation of government sponsored, privately funded
solutions for mega-catastrophes that will make insurance more available and affordable.
Pricing of property products is typically intended to establish returns that we deem acceptable over a long-term
period. Losses, including losses from catastrophic events and weather-related losses (such as wind, hail, lightning and
freeze losses not meeting our criteria to be declared a catastrophe), are accrued on an occurrence basis within the policy
period. Therefore, in any reporting period, loss experience from catastrophic events and weather-related losses may
contribute to negative or positive underwriting performance relative to the expectations we incorporated into the
products’ pricing. We pursue rate increases where indicated, taking into consideration potential customer disruption,
the impact on our ability to market our auto lines, regulatory limitations, our competitive position and profitability, using
a methodology that appropriately addresses the changing costs of losses from catastrophes such as severe weather and
the net cost of reinsurance.
Allstate Protection outlook
• Allstate Protection will continue to focus on its strategy of offering differentiated products and services to our
target customers while maintaining pricing discipline.
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