The Indication: Is that your final answer? Part Two Roger Schultz, FCAS, MAAA, CPCU, MBA Assistant Vice President Allstate Insurance Company 2002 CAS Ratemaking Seminar March 7 - 8, 2002

The Marketing Plan "3C STP 4P" Price Company Strategy Target Product Positioning Product Customer Place Promotion Competition "3C STP 4P"

Market Positioning - An Example Personal Lines Automobile Low Prices Personal Lines Automobile Price vs. Service State Farm Farmers Low Service High Service Nationwide On the surface, one would expect prices and service to be strongly correlated. Lower prices bring lower service levels and vice versa. Service has many dimensions, but we will examine two of them during this exercise - agent service and (Dave’s chart) claim service. Prive vs. agent service does not perform as we expect. There is no clear relationship between price and agent service. If there was, there would be a corridor from the upper right of this chart to the lower left. There are two initial reactions to this chart. First, the majority of the leading players in the industry are remarkably undifferentiated. 9 of the 14 companies portrayed on this chart crowd into the lower left side of this chart, including the top 4 nationally. Second, a few companies occupy rather surprising positions on this chart. USAA, a niche writer of military personnel, have the reputation of having very low prices and offering outstanding agent service. What might be most surprising about this is that USAA has no agents, they use customer service representatives supported by excellent service technology. Others of note: AMICA, a regional writer of very preferred risks, has clearly distinguished itself along the service dimension while maintaining a price position no worse than average. GEICO, a direct response company, has made their point to the market (through advertising) regarding their prices, distinguishing itself along the price dimension while maintaining a reputation for average service. Like USAA, they have only customer service personnel. Hartford may be the most interesting company on this chart. A mainstream writer, they have developed a unique position on this chart and are moving in the right direction. What will the map look like in the future? One item to note - nobody is moving toward the upper left - low price and low service. What does that imply? Hartford is the only company that USAA needs to worry about and looks to be a pretty strong competitor. Allstate (and State Farm) could easily become players in the upper right quadrant should they make a concerted effort to change their pricing position. Sidebar - given what we know of economics and the economy of scale concept, isn’t it interesting that both State Farm and Allstate, the market leaders by large margins, have the worst price position. Reality and reputation may differ for this dimension. PROG GEICO USAA AMICA High Prices

Market Attractiveness Substitutes Suppliers Buyers Rivalry Entrants Michael Porter developed a structure for assessing the overall attractiveness of a marketplace. These are the five major forces he identified in his model.

Market Attractiveness Culture Government Substitutes Suppliers Rivalry Buyers Technology Complementary Cos. Entrants Porter’s model has been embellished over time to reflect contemporary marketplace considerations.

The Indication is NOT the final answer Closing thoughts Discussion THANKS FOR COMING!