You're in New Hands with Allstate
The CNA deal adds lots of agents--but where's the Net?

With personal insurance sold through the Internet, telephones,  and armies of independent agents these days, who needs those ``good hands'' people? That's the question facing Allstate Corp., which for years has wooed consumers with images of smiling agents offering nothing but Allstate in their gently cupped hands.

   Now, the Northbrook (Ill.) company is in the process of putting some of its insurance sales into other hands. With its June 9 deal to acquire CNA Financial Corp.'s $1.7 billion auto and homeowner's insurance lines, Allstate will move beyond its 15,500 dedicated agents to add CNA's 3,800 independent agents. It's the first time that Allstate has put both on the same turf, although it already uses independent agents in rural areas or to sell higher-risk auto insurance under the Deerbrook brand. But consumers increasingly want services that let them shop around, and Allstate wanted a
piece of that business. ``We think the right thing is to sell insurance whenever and wherever people want to buy,'' says Allstate CEO Edward M. Liddy.

   The so-called captive agents, who hawk only one brand, still control 60% of all U.S. homeowner's and auto-insurance sales (chart). But Allstate and the other companies that use them are acutely aware that outlets from independent agents to the Internet are luring awAy a big chunk of sales. It's a battle that airlines and financial institutions have also fought as they move to sell through the
Net--with most simply ignoring protests from travel agents and brokers to get into direct sales. Liddy acknowledges the dilemma but insists there's no cause for mutiny among his existing agents.

   Still, in a recent survey of online consumers by IVANS Inc., a Greenwich (Conn.) company that does E-commerce and network consulting for the insurance industry, some 26% were interested in buying insurance over the Net. At least 8% of all customers now buy their homeowner's and auto insurance through the Internet or 800 numbers vs. virtually none about five years ago. Liddy is not
interested in direct sales over the Internet, he says, and the CNA deal is meant to complement his existing network. ``The Internet is not high on our agenda,'' he says. ``Very little of this business is sold online.'' It's a problem for all insurers, says IVANS' Dan R. Carmichael, ``There's some concern with sabotaging the channels they have.'' WARNING BELL. Liddy is spending more time orchestrating the delicate transition into direct competition by keeping the two companies separate for now. The new crop of independent agents will be able to sell CNA insurance for the next six years but won't get their hands on the new parent's products. Meanwhile, Allstate's captive agents can continue to sell that brand but not CNA, even though both lines will basically be the same.

   Dealing with the captive agents won't be easy, though. ``There's no way to soften the blow,'' Liddy says, adding that ``most of them understand the benefits of this transaction.'' He argues that Allstate agents shouldn't even notice the difference as the new team will be selling a different brand.

   Even so, many Allstate agents sense that their control of the family's insurance cabinet is clearly set to disappear. The deal propels Allstate--already the second largest provider of auto and homeowner's
insurance--from ninth place to third in the independent agency market. Seattle agent Joseph J. Noyes calls the CNA deal a warning bell. ``There are a lot of ways to get our product to the consumer,'' says Noyes. ``If I'm not out there doing my job, Allstate will find a way to do it with or without me.''
Others are more blunt. ``I have to be loyal to Allstate, but it seems they don't have to be loyal to me,'' says a Connecticut agent who asks not to be identified. But J.J. Johnson of Mansfield, Tex., insists the move is positive for him as it improves the overall Allstate network. He contends that he has ``more competition from other Allstate agents than anyone selling CNA.''

   After all, every insurer is fighting to find new ways to build up its business in this increasingly competitive market. For example, The Hartford Financial Services Group, Inc., which has always relied on independent agents to push its products, is now building up sales through financial institutions
and groups such as the American Association of Retired Persons. ``We don't think of multiple channels as sabotaging any channel,'' says Stephen J. Hasenmiller, president of the company's personal lines business. LOYALTY FACTOR. Still, those with big captive armies can find it tough
to dig new channels. While several captive-agent companies, such as Nationwide Mutual Insurance Co. and Farmers Insurance Group, have moved toward independent agencies, others refuse to budge. State Farm Insurance Cos. of Bloomington, Ill., the country's largest underwriter of auto and homeowner's insurance, has no plans to sell through anyone but its own 16,500 agents. ``Sometimes the loyalty you engender by going through one channel means more than any marginal increase in sales,'' says Chuck Wright, State Farm's executive vice-president for agency and marketing.

   But Allstate insists its new channels are far from marginal. Independent agents handle about $45 billion in premiums each year, and Allstate has had only 2.3% of that pie. The CNA acquisition will bring it up to 5% and give the company access to legions of customers who simply won't buy from
dedicated agents. ``The insurance marketplace is pretty competitive right now,'' notes Liddy. ``It's hard to generate any revenue increase without moving in new directions.'' For now, the challenge for Allstate is to make sure its captive agents are content to work alongside the new recruits. But down the road, both sides may have to reckon with the Net.

By Diane Brady in Greenwich, Conn.