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External Analysis of TheAllstate Corporation
Introduction
The Allstate Corporation or simply Allstate is an American publicly listed company that
specializes in the services related to insurance industry. It operates in four main business lines.
These business operations include insurance of life, property, auto and commercial services
respectively (one source, 2011).It also offers banking, investment plans and retirement benefits
to its customer base. It is one of the largest companies in the United States that offer personal
line insurance plans to the wide range of customers. It maintains a strong nationwide network
through its various agencies, professionals as well as its help line (Allstate, 2011). It also has its
operations in Canada.The company is currently listed at number sixty eight in the Fortune 1000
companies list (one source, 2011). Moreover,The Allstate company is also engaged in various
social activities like the sponsorship of various local events like sports events; Allstate bowl,
bike race, etc.
SWOT Analysis
SWOT Matrix
The SWOT analysis lists internal strengths and weaknesses and compares them with the
external opportunities and threats. The SWOT analysis ofAllstate Corporation is as follows:
Strengths
Market position
Diverse portfolio
Credit ratings
Weaknesses
Little online presence
Geographic concentration
Low market share
Opportunities
Acquisitions
Threats
Competition
Online presence
Geographic expansion
Price wars
Economic conditions
Strengths
Among the large companies operating in United States, Allstate is one of the largest
companies operating there that offer personal line insurance plans to the diverse range of
customers. It maintains a strong nationwide network through over twelve thousand agencies,
professionals as well as its help line(Allstate, 2011).It operates in four main business lines. These
business operations include insurance of life, property, auto and commercial services
respectively (one source, 2011). It also offers banking, investment plans and retirement benefits
to its customer base. The company has received very strong credit ratings from the top notch
rating firms in United States (Allstate, 2011). It is among the top insurers in the markets with the
market capital of 15.53 billion US dollars, ranked at number two while The Travelers Companies
Inc. has a market capital of 24.18 billion US dollars, ranked at number one in comparison with
Allstate Corporation (NYSE:ALL, 2011).
Weaknesses
Despite of the fact that Allstate is one of the largest companies in the United States
offering personal insurance plans to its customer base, it too is weak in various grounds. Among
the list of its weaknesses is it has very little online presence. With the advent of time, the
methods of doing business have become advance. Large number of companies is offering their
products and services through internet to cater the market segments that have little or no access
to the physical markets or offices. In this regard, Allstate lags behind its counterpart. Almost
every organization is currently offering online services to their clientele. Another weakness of
Allstate Corp. is that it has very low geographic diversification. Most of its business operations
are directed in United States and Canada. Which means it is vulnerable to the environmental
changes like political, economic, social and legal changes in these countries. Lastly, the company
is operating in United States since 1931 but it has very little market share in the US markets.
According to the review on Allstate by Free Advice (2011), it has around eleven percent market
share with State Farm at number one with around nineteen percent market share respectively.
Opportunities
There are large numbers of opportunities available to Allstate Corporation. Among the
available opportunities is the geographical expansion. It has no geographic presence in the
countries that offer great growth opportunities to the companies operating there. Allstate can
expand its business portfolio in the emerging markets of Asia like China and India. These
countries promise growth opportunities to the large number of companies operating there.
Another opportunity available to Allstate Corporation is to engage in the business
mergers or acquisitions activities. These activities can give a competitive advantage to the
company over its competitors in the markets.
As already mentioned in the weaknesses, Allstate have very little online presence. It can
improve its online presence by offering online services to its large range of customer base in the
national as well as international markets. This will increase its market presence to many folds
and the company will also be able to face the stiff competition given by its counterparts.
Threats
The insurance markets in United States are highly competitive in nature with a large
number of market players offering wide range of products to the nation. Allstate faces stiff
competition with these players. The top three competitors of Allstate Corporation areFarmers
Group, Inc., The Progressive Corporation and State Farm Mutual Automobile Insurance
Company respectively (Hoovers, 2011).
Another level of threat to the company is the recession in the United States Economy.
The downfall in the US economy has touched all the levels of business and lives of people. It has
severely affected the companies operating in the domestic markets and the demand of the
customers. The demand is dependent on the demographics of the customers and the commercial
requirements that affect their needs. The consumers are required to buy auto insurance and rental
insurance by the government and lenders. If these economic conditions continued to prevail, then
Allstate will likely to suffer huge losses in the coming years (USSEC, 2011).
Another possible threat faced by Allstate is the changing regulations by the US
government for auto markets. The government of United States has mandated insurance of
vehicles and drivers. The recent regulations involve the auto insurance based on the safety
records of driver, the mileage driven and the experience of driver in driving respectively (Car
Insurance rates, 2011).
PESTEL Analysis
The PESTEL analysis contains the analysis of Political, Economic, Social, Technological,
Environmental and Legal environments of a country with reference to a particular object. The
PESTEL analysis ofThe Allstate Corporation is as follows:
Political
The federal law prohibits companies to make contributions in the political activities and
federal candidates; Allstate Corp. makes contributions to the parties where it has liberty to make
corporate contributions. The US Supreme Court has drawn restrictions on the corporate spending
on the political activities. Like the other companies of its league, Allstate is involved in the
political contributions via its political action committee called Allstate PAC.
Allstate strives to demonstrate its commitment for the public health and care by making
sure that it is able to add its voice at the time of devising public policies. Through its political
action committee, Allstate Corporation has spent over seven hundred thousand US dollars in the
year 2010 for making political contributions to the wide range of national and state level parties
(open secrets org, 2011). The political action committee of the company has spent over one
million US dollars for the year 2010 in the favor of Democrats party (open secrets org, 2011).
The company has also given donations to over five hundred groups including more than
fifty thousand US dollars for the year 2010 (Center for Political Accountability, 2010).
Economic
The economic conditions of a country play an important role on determining the success
and failure of a company. Since, most of the functions of Allstate Corporation are directed in
the domestic markets of United States, so its likelihood of getting hit by the economic changes
and governmental ruling is high. The downfall in the economy of United States has adversely
affected large number of organizations operating in United States and increased the opportunity
costs associated with their business segments and operations. Moreover, these declining market
conditions have increased the unemployment rate in the company. According to the CEO of
Aetna Inc. the government is been trying to raise the level of employment in the country but this
has no significant or direct impact on the health care industry. The economic conditions of the
country still seem to be troublesome for large number of companies (Sturdevant, 2011).
The declining business and market conditions can severely impact the business
operations of the company in the form of consumer behaviors, investment pressures, and
weakening financial markets respectively (USSEC, 2011).
Social
Allstate Corporationis effectively engaged in the social and community related activities
in order to raise the living standards of people in the communities it operates in. The company
believes it is very important for the success of the company, its employees and policy makers to
understand the needs and requirements of the communities they operates in. the company follows
diverse culture all over its business units (Allstate, 2011). The social responsibility report
communicated by the company divides its corporate social responsibilities in three ways:
responsible business practices, commitment to the community involvement, and commitment to
the social impact of the company.
In order to achieve the community involvement, Allstate has divided the communities in
three main groups local communities, hometown- Chicago Metro Area and National
communities with the help of various non-profit organization and institutions working for the
improvement of communities. Allstate has established Allstate Foundation to serve the needs of
people from these communities. They help these people by volunteering time, financial resources
and offering social help to them (Allstate, 2011). Allstate is an equal opportunity employer
where large number of employees hired in the company is from local communities including
over fifty eight per cent female employees and over thirty percent minorities respectively
(Allstate, 2011).
Technological
The technological advancement is vital to the success of a company in today’s
competitive environment where large numbers of counterparts are ready to snatch the market
share of a company. The business operations and processes are significantly dependent on the
latest information technology systems. The Allstate Corporation has implemented the latest
information technology systems to facilitate the flow of information within the offices and all the
other business divisions (Allstate, 2011).
According to the reports communicated by Schelmetic (2011) Allstate has purchased the
Esuranceto expand its online presence in order to facilitate larger number of customers seeking
auto insurance facilities online. Likewise, they have bought Answer Financial, quotations
related software, as well in order to facilitate the clients to compare the financial quotes online
and buy insurance through their websites.
Environmental
Like the other entire responsible corporations in the markets, The Allstate Corporation is
also engaged in the activities that foster the environmental safety. The environmental policy of
Allstate explains its objectives that “At Allstate we have established policies and programs to
reduce the direct impact of our operations on the environment and to promote the safety and
health of our employees”(Allstate, 2011).It has started number of activities in order to minimize
its impact on the environment and atmosphere. Among its initiatives includes reduced energy
use, recycling of paper, saving water at its facilities.
Legal
In order to maintain its market position and its license to operate in the markets of United
States, Allstate has to comply with the local, regional, state and federal level rules, regulations
and laws. Allstate is subject to various legal proceedings currently in pipeline. Some of the legal
proceedings against the company include: policy change claims for homeowners (Progressive
Direct, 2007), auto insurance cases (Griffin and Johnston, 2007), class action law suits for
worker rights and human rights issues (Know more org, 2011), Raymond Corbett, Clifton
Smith,and Nora Albaughvs. The Allstate Corporation (class action law suit, 2000), bad faith
insurance complaints and various other class action cases were held against the company.
Porter’s Five Forces Analysis
Porter’s Five Forces Analysis helps the managers to understand the market position and
the effectiveness of business strategies of a firm with reference to five micro and macro level
environments (Porter, 2008). These five forces include Competition, New Entrants, and Buyers
Power, Suppliers Power and Substitute Products and/or services respectively. The Five Forces
Analysis for The Allstate Corporation is as follows:
Rivalry among established competitions
The level of competition among the existing competitors in the industry is very stiff. The
main competitors of Allstate Corporation are Farmers Group, Inc., The Progressive Corporation
and State Farm Mutual Automobile Insurance Company respectively (Hoovers, 2011). In the
health insurance industry, the customer demands are associated with the increasing costs of
medical options available to them. The market success and profitability of the firms operating in
the industry is dependent on their operations and their ability to obtain favorable contracts with
the medical and health care personnel (Hoovers, 2011).
Bargaining power of suppliers
The bargaining power of suppliers is derived by their power to demand the prices of their
own choice. The supplier’s power in the insurance industry is not a big threat to the companies
operating in it. But the threat suppliers taking away human capital does exist in the industry. This
industry is entirely based on the human capital.
The bargaining power of buyers
The individual buyers do not have much power to influence the insurance industry at
large. The large corporate clients and other related businesses pay large sums of money as health
insurance premium to these companies. These market players in the insurance industry long to
get high margin corporate clients.
The threat of substitute products or services
The threat of substitutes is very high in the insurance industry as there are plenty of
substitutes available in the market. Many of the firms offer the services that are similar to that of
large companies. There exists high level of competition on all the grounds whether it is auto
insurance or health insurance. There are companies operating in the markets that offers unique
products and services to their customers and have competitive advantage over their counterparts
which depends on the size of their business segments.
The threat of the entry of new competitors
The industry imposes certain barriers to the entry of the new companies in the markets. This
means that the level of threat of new entrants is relatively low in the industry. There are varying
reasons to the low rate of entry. Among them is the entry barriers imposed by the industry. The
new entrants will have to comply with the governmental regulations in order to make their entry
in the markets. Then the existing players are protected by the number of barriers which makes it
difficult for the new entrants to give hard time to them. Among them are: entry restrictions, tariff
rates, high capital requirement, distribution channels etc. These barriers limit them to compete
against the existing market players.
Recommendations
This study provided brief overview on the external environment analysis of The Allstate
Corporation. The findings of the study suggested that Allstate Corp. should focus on the
following factors in order to excel its business and social image in the world:
1. Allstate can increase its market share by improving its existing operations in the
domestic and international markets.
2. It can expand its business in the emerging markets like China and India to obtain
maximized profits and sales
3. Improvement in the community and environmental activities are required for the
company’s face saving activities in order to wash out the effects of legal proceedings
against the company.
4. It should differentiate itself, its products and services from that of competitors by
reinventing their business operations.
References
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(2011) Community Involvement, retrieved on July 15, 2011 from http://www.allstate.com/social-responsibility/community-involvement/main.aspx
(2011) Diversity, retrieved on July 15, 2011 from http://www.allstate.com/diversity.aspx
(2011) Environment, retrieved on July 15, 2011 from http://www.allstate.com/environment.aspx
Car Insurance Rates (2011) Mandatory Car Insurance Laws - Fines and Penalties for Not Insuring Your Auto?, retrieved on July15, 2011 from http://www.carinsurancerates.com/news/62-mandatory-insurance-laws-are-they-fair.html
Center for Political Accountability (2010) Political Transparency and Accountability Profile (2010): The Allstate Corporation, retrieved on July 15, 2011 from http://www.politicalaccountability.net/index.php?ht=a/GetDocumentAction/i/3948
Class Action Complaint (2011) The Allstate Corporation, retrieved on July 15, 2011 from http://www.allstateinsurancesucks.com/Class_Actions/JamesHoyer.htm
Griffin, D., and Johnston, K., (2007) Auto insurers play hardball in minor-crash claims, CNN, retrieved on July 15, 2011 from http://articles.cnn.com/2007-02-09/us/insurance.hardball_1_accident-victims-auto-insurers-allstate?_s=PM:US
Free Advice (2011) Allstate Review, retrieved on July 15, 2011 from http://insurance.freeadvice.com/reviews/3/info/Allstate+Insurance/
Hoovers (2011) Competitive Landscape, retrieved on July 14, 2011 from http://www.hoovers.com/company/The_Allstate_Corporation/rjrxti-1-1njea3.html
Knowmore Org (2011) The Allstate Corporation, retrieved on July 15, 2011 from http://knowmore.org/wiki/index.php?title=Allstate
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Open Secrets Org (2011) Allstate Insurance Corporation, retrieved on July 15, 2011 from http://www.opensecrets.org/pacs/lookup2.php?strID=C00040253&cycle=2010
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Progressive Direct (2007) Home Insurance 9-1-1, retrieved on July 15, 2011 from http://www.pbs.org/now/shows/333/index.html
Schelmetic, T. A (2011) Insurance Technology - Allstate Buys Esurance to Expand Online Auto Insurance Presence, retrieved on July 15, 2011 from http://insurance-technology.tmcnet.com/topics/insurance-technology/articles/176132-allstate-buys-esurance-expand-online-auto-insurance-presence.htm
Sturdevant, M. (2011) Aetna CEO: Drop In Jobless Rate Hasn't Boosted Health-Plan Enrollment, retrieved on July 15, 2011 from http://articles.courant.com/2011-03-08/business/hc-aetna-bertolini-unemployment-20110308_1_unemployment-rate-annual-health-care-conference-group-growth
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