Allstate's $1 billion "failed experiment" to break out of its 'burden" category

By Ron Halverson Ph.D.

- April 13, 2018

 

It’s not easy being in a burden category. From the consumer’s perspective, a burden category is the equivalent of going back to work on a Monday morning—something you need to do and the benefits are obvious, but you don’t particularly want to do it. Not surprisingly, one such category is insurance. Everybody needs it and most worry they don’t have enough of it, but shopping for it is not high on the “love to do” list.

So how do insurance companies innovate or position themselves differently to deliver a journey that feels less burdensome (and maybe even a bit enjoyable)? Major players in the game—Allstate, Progressive, Geico, American Family Insurance—all have launched tactics to win in this race (more on that later). But just ask Allstate how difficult it is to win: In an October report Morningstar insurance analyst Brett Horn called Allstate’s decision to buy Esurance for $1 billion six years ago a “failed experiment” that, according to an article last week in Crain’s Chicago Business, hasn’t “made a dime” for Allstate. That hurts. But when your business is in the burden category, the price of entry is being prepared to conquer pain.

To do so, insurance companies must better understand people’s underlying motivations at play when undertaking an Insurance purchase journey. At Halverson Group, we rigorously studied the decision-making process that consumers go through when determining what to buy across 13 diverse categories, from TVs to chewing gum to car insurance. The map below plots where each of these categories fall.

 

We found, not unexpectedly, that the insurance category as a whole was strongly anchored in the upper-left quadrant of our Decision Dynamics Map™ in terms of underlying motivations that drive and shape purchase journeys. The consumer experience of shopping for car insurance can best be characterized as:

  • Logic-based (few people “love” the insurance selection journey, but people know they need it and they want the best insurance they can afford for their lifestyle—emotion plays a back seat in the decision-making process, even though emotion often plays a starring role when people need to use insurance in their lives)
  • High risk (choosing the wrong option could have significant life consequences due to fear of being under-prepared—think MAYHEM—or getting locked into paying too much for a long contract)
  • High complexity (requiring multiple often unfamiliar steps because it is a purchase journey that people don’t make very frequently in their lives)
  • High effort (purchasing insurance often requires digging deep into multiple insurance providers and products, consulting with expert ratings, reviewing current and past customer reviews, reviewing agent capabilities, gathering personal financial and asset ownership information, completing applications, etc.)

Collectively, these factors land insurance into the upper-left quadrant of the Decision Dynamics Map™, which results in people spending more time on their journeys, with more doubt and indecision, often abandoning their search for a better alternative. This is not a perfect battlefield to choose if you are trying to steal market share.

One example of a company that has managed to transcend this quadrant is Geico. When Geico entered the market, they worked purposefully to transform car insurance journeys into the lower left quadrant by playing up price and convenience, mentally lowering the stakes for people. Geico even went so far as portraying the category as fun. Progressive has also managed to effectively shift out the burden quadrant in people’s minds by promising low-effort with a dip into low-risk through allowing consumers to “See how our auto insurance rates stack up against others’”—in other words, removing the burden of comparison shopping (low-effort) and diminishing fear of overpaying (low risk). Not surprisingly, Progressive and Geico are at the top of their games (posting $11.2 billion and $30.5 billion in written auto premiums at the end of 2017, compared to Esurance’s $1.6 billion, according to Crain’s).

Another way to help consumers mentally shift out of the burden quadrant is to shift to a more aspirational space (or the upper right quadrant), where vacations, great jeans, and pursuit of dreams live. You could say that American Family Insurance played that card with its “Insure carefully, dream fearlessly” campaign. But this approach only takes you so far—as in, you got me all excited when you pulled me out of the burden category with that dream fearlessly stuff, but now I still need to insure carefully. Back to the burden quadrant I go! A shift to the upper right quadrant, where consumers have more of an emotional connection and are rewarded by their choice, has the potential to change negative perceptions of shopping for insurance. But this quadrant is still high-effort. So, there better be a great pay-off in that your offering is so demonstrably superior at delivering a dream-filled life that people are willing to expend a lot more effort. Or, somehow, you must transform the journey itself into something that people desire and value, such as lustfully dreaming about your next get-away-from-it-all vacation, whether you make it there or not. This type of transformation requires mad-enterprise-contortionist skills when a company is staunchly anchored in a burden category.

Now, let’s come back to that “failed experiment” known as Esurance. But first, let’s note that parent company Allstate has chosen to double down on risk by playing up “mayhem,” further anchoring consumers in the risk and complexity quadrant—and its stock price climbed 13.5 percent over the last year, while its auto insurance division has seen its best profits margins in a decade (source: Crain’s). Not too shabby. Growth, however, has been a challenge for Allstate for some time, which was the impetus for the Esurance purchase. Allstate was heading in the right direction when it purchased the online insurer (i.e. away from the high-effort, high complexity, high risk quadrant and into the quadrants where Geico and Progressive are playing). But as even the CEO himself Tom Wilson said, the intent of the move was to compete in the online space. Being online obviously helped deliver a lower-effort alternative, but Esurance hasn’t yet provided a solution that addressed all of the underlying decision dynamics at play. We hypothesize that if Esurance could aggressively reduce complexity and the perceived risk of getting the decision wrong, make the process seamless, and effectively communicate these advantages to address all of the burden decision drivers, it could indeed move its growth needle significantly.

How can you be sure which strategy is right for your company? Insurance companies cannot afford to guess about where the most viable, valuable and winnable opportunities lie given the massive stakes and aggressive competitive landscape. Based on the extensive work that we have done in the human motivational space, we conduct primary quantitative and qualitative research to unlock deep insights into how people are seeking to make progress in their lives and how they go about making choices about which products, services and experiences they “hire” to get important jobs done in their lives. We call this powerful approach to identifying, sizing and prioritizing growth opportunities Jobs to Be Won™. The result of this process for an insurance company is a visual map of the “Insurance Landscape” or the winnable jobs for insurance companies. Even more importantly, however, is fuel for answering critical growth questions like: Can more jobs be won on simplicity? Is there yet more opportunity in the aspiration quadrant? Can low-risk or routine jobs be won through means other than low price? What is the current journey for insurance buyers—and how can we disrupt it in the future? Who are our best prospects to target that will most likely yield the growth that we relentlessly seek? etc. etc.

These are all important strategic questions for companies in “burden” industries to address (actually, they are important questions for most companies), and the answers could change everything, from innovation to marketing to conversion to loyalty strategies. The industry’s burden image is deep-seated. Shedding that image will require a careful blend of audience understanding, imagination, bold strategic choices and relentless flawless execution. With careful consideration of the “jobs” people are seeking to get done in their lives and carefully understanding the factors that shape people’s purchase journeys, we’re optimistic that Allstate can transform it’s “failed experiment” into a human centered growth success story.