$25 billion insurance name Allstate (ALL) tips the scales as the second-largest U.S. personal lines and property-casualty insurer. The firm sells automotive, homeowners and life insurance as well as other financial products through a network of approximately 10,000 Allstate agents as well as a network of banks and independent agents. In the insurance business, size comes with some serious advantages, and Allstate is riding those advantages to profit; with a huge customer base, the firm is able to cross-sell multiple policies to its existing customer Rolodex.
That network effect is effectively the only advantage there is in the insurance business these days. Let's face it: the insurance business has become largely commoditized these days. That's why ALL's ability to spread risk across a larger pool of subscribers is crucial to keeping costs low -- and crucial to winning and keeping customers. Allstates reputation and customer service give the firm the ability to be a bit more risk-conscious than many of its rivals, but ultimately ALL needs to remain competitive on price first and foremost.
The firm's decision to trim its homeowner's insurance portfolio has been a step in that same direction. It cuts catastrophic risk in favor of more auto insurance, which is much more quantifiable (and less subject to one-time catastrophes). Look out for earnings on July 28 as a potential rally catalyst.