Underscoring Change.

Allstate adopts a new name as it expands its life insurance operations to include savings and investment products.

Allstate Corp., the nation's second-largest auto mobile and homeowners insurer, has renamed its life insurance operations "Allstate Financial" to underscore the expansion of its traditional life insurance business into savings and investment products.

The name change from Allstate Life Group of Cos. mirrors an industry trend: Allstate, like some other insurers, has envisioned an enhanced role for its agents in serving aging baby boomers. Some 2,500 Allstate agents already are licensed to provide personal financial products, such as fixed, variable, indexed and market-value adjusted annuities in addition to variable life and mutual funds. Allstate estimates that half of its agency force of 13,000 exclusive agents will be similarly licensed by 2002.

Allstate Financial products also are distributed through nearly 50,000 financial professionals including independent agents, bank representatives and securities firms.

In announcing the name change, Thomas J. Wilson, chairman and president of Allstate Financial, took questions from Best's Review on the company's strategy and what Allstate Financial means to the corporation's bottom line.

Q: Why has Allstate Financial decided to target middle-income consumers?

There are a large number of people nearing retirement age who need help in making sure they get a safe, secure retirement. This includes both affluent and middle-income people. But we are focused largely on the middle-income consumers for a couple of reasons. First, we have 20 million customers who buy products from Allstate so we have a large number of middle-income consumers who are already buying products from us, they know our name and they trust us. So this is consistent with our current customer base. Second, most of our competitors are focused on more affluent consumers as opposed to the middle-income group and we think this is a group who needs help and that we know well. So, it's a good strategic move for us.

Q: Who is your biggest competitor in this area?

From Allstate Financial's standpoint, we sell a wide variety of life and annuity savings products through a variety of distribution channels. About three-quarters of our business is focused on consumers and we sell a lot of variable annuities, a lot of fixed annuities and a lot of life insurance-it's almost evenly split among those three categories.

We think there are three companies that are squarely in our competitive set as companies we need to beat. They are AmEx [American Express], GE and Metropolitan Life. AmEx has 11,000 financial advisers, and they're targeting slightly more affluent people than we would be targeting. GE has very strong nonproprietary distribution just as we do, and so we compete aggressively with them for middle-income consumers in nonproprietary distributions. Metropolitan Life has the Metropolitan agents focused on middle-income consumers. They also have a strong position in the workplace. In 1999, we bought American Heritage Life, which is the third-largest work-site provider of life and supplemental health products in the United States. Metropolitan Life competes in that market although they're into big companies. We really do small companies. But I believe they will be moving into smaller work sites. That's their stated strategic intention.

We, of course, compete with a variety of other companies. We compete with Hartford, American General, Keystone, and American Skandia on a day-to-day basis. We watch where they price; we look at their service offerings. And we try to beat them each and every day. But if you said which are the three companies where, long term, we need to beat them to be successful, it'd be AmEx, GE and Metropolitan Life.

Q: How does this financial-adviser focus fit in with the "Good Hands Network," the corporation's new business model that blends use of the Internet and toll-free-number service with Allstate's agent force? To what extent is Allstate Financial selling life insurance over the Internet now?

The new technology that Allstate has introduced is really about making sure we can connect with our customers any way they would like to connect with us. We happen to use Internet and call-center technology, and we use our agents, both in person, over the phone and their e-mail. So in today's communication world, you need to be able to talk to people any way they want to talk to you, and that's really what that is about.

We need to be able to do the same thing with our consumers on Allstate Financial products, and we do that today. But it will continue to change as we go forward. We do sell over the Internet and have been selling life insurance over the Internet for the last three years. But the results have not been satisfactory to our way of thinking, in part because with the financial products, they tend to be a little more complicated and people want to talk to somebody. A lot of people use our Web site for getting information about the products, but not that many of them actually want to close the sale on the Internet.

Right now, life products are not being sold through the Good Hands network. That currently is only for auto and property products. However, we do sell on a direct-response basis. We sell accidental death and disability and credit insurance on an affinity basis to Sears credit-card and Discover credit-card holders. And we have a call center in Illinois that's solely dedicated to that with 300 people in it, but that's less than 2% of our business.

Q: Allstate, like a growing number of life insurers, has been turning to banks to distribute its products. Would you ever consider buying a bank, the way MetLife has done?

We own a bank already that we started up and it does mostly internal processing for us. We've yet to determine how we want that bank to play a role in offering retirement services to our consumers, but we're very active in the bank channel.

We're the No. 2 or No. 3 writer of fixed annuities through banks, and we're one of the larger writers of variable annuities through banks. We've had some pretty good success in a few banks on writing life insurance, which has been a long time coming--we've been working hard trying to get banks to sell life insurance.

So, our strategy on banks is really to broaden our product portfolio and sell a whole host of the products that we make through our bank partners. And that would include variable annuities, fixed annuities as well as life insurance.

Q: Your venture with Putnam has certainly helped boost sales of variable annuities, which increased by 23% in the third quarter. Does All-state Financial plan to embark on other such ventures--alliances, mergers or acquisitions--or does it want to focus more on internal growth at this point?

The acquisitions we've done so far have worked out very well for us, which gives us some confidence that we know how to do acquisitions. But we've done very well with alliances, too--the Putnam transaction is really an alliance--we don't own Putnam. We've put together our skills and capabilities and their skills and capabilities to put our brand name on with their brand name. And we've really got the best of all worlds. We both benefit from it, yet nobody had to pay a lot of money to buy the other.

Q: Has American Heritage Life's marketing structure gradually been moving across the United States, as some analysts had predicted? Does this new distribution channel allow you to sell personal auto and homeowners in the workplace, given American Heritage's workplace focus?

It gives us the ability. But we are not yet selling auto and homeowners through the work site, in part because we see so much opportunity in selling our existing products at the work site, and those products tie in closer to employee benefits, If you're selling somebody disability insurance or life insurance, it tends to tie in better to employee-benefit packages. Auto and homeowners insurance are kind of standing on the side from that. We see so much opportunity in what we're doing today that we haven't chosen to put our focus on selling auto and homeowners in the work site. Now over time, if those are products that our customers and employers want offered, we would certainly do it. But right now, it's not a focus.

Q: Some analysts say mortality had no impact on the company's recent life results, which were very good, and that investment spreads and low expenses were a result of major efforts by Allstate management. What kinds of efforts does that sort of return require and how can it continue?

Allstate Financial's results were up over 30% in operating income in 2000. The first nine months of the year, we made close to $400 million after taxes, which is more than we made all of 1999. It's a result of a couple of things. One is growth. In 1998, we had statutory premiums of about $500 million a month. So we did about $6 billion in statutory premiums. As of November, we're running at over $1 billion a month, which is an annual-run rate of $12 billion. So it's double the size of the company in less than two years. Now that's gross inflows--the way the life insurance business is, you make a little money on every dollar over a long period of time. But that certainly has helped us over the last two years. We've had a substantial amount of growth. On top of that, we have controlled our expenses at Allstate Financial. Our dollar expenses are essentially flat. So the result of high growth and controlling expenses lets more money flow down to the bottom line.

To what extent does Allstate Financial provide Allstate Corp. with a boost in its earnings, especially lately, as products such as annuities are doing so well in a sometimes volatile market?

We think that Allstate Financial will continue to be an ever-increasing share of the Allstate Corp.'s profit, in part because we're in a market where the demographics are with us. The wind's at our back. As people age and head toward retirement, there's more people to sell products to--as opposed to an auto or homeowners business where there's just not a lot of net new adds in homes and cars across the country.

Any thoughts on overseas expansion?

No, Allstate Financial's really focused domestically. We think we have a tremendous opportunity to mine the 20 million customer base and then broaden our existing distribution. We're not focusing internationally right now.

Thomas J. Wilson

Position: Chairman and president of Allstate Financial, North-brook, Ill., and a member of Allstate Insurance Co.'s senior management team. Prior to 1999, he was senior vice president and chief financial officer for Allstate Corp. Wilson, 43, joined Allstate from Sears, Roebuck and Co., where he was vice president of strategy and analysis. He was responsible for strategic planning, financial planning and analysis, and special projects for the corporation.

Experience: Managing director of mergers and acquisitions at Dean Witter Reynolds from 1986 to 1993. He also has held various financial positions at Amoco Corp.

Education: Bachelor of science degree in business administration from the University of Michigan and a master's degree in management from Northwestern University's J.L. Kellogg Graduate School of Management.