Editors’ Note

Edward Liddy has been Chairman of Allstate since January 1999, concurrently serving as Chief Executive Officer from 1999 to 2006. He was previously President and Chief Operating Officer, serving in the latter position until January 1999 and as President until May 2005. Before joining Allstate, Liddy was Senior Vice President and Chief Financial Officer of Sears, Roebuck and Co. A member of numerous professional and civic affiliations, Liddy is a director of The Boeing Company, 3M, and The Goldman Sachs Group, Inc.; is Chairman of Northwestern Memorial Hospital; and sits on the board of directors of Catalyst Inc.

Company Brief

Founded in 1931 and based in Northbrook, Illinois, The Allstate Corporation (www.allstate.com) is the United States’ largest publicly held personal lines insurer. A Fortune 100 company with $159.4 billion in assets, Allstate offers 13 major lines of insurance, including auto, property, life, and commercial, plus a range of retirement and investment products and banking services. The company has 38,000 employees, and through 14,600 exclusive agencies and financial representatives and 17,000 licensed support staff, it serves 17 million households.

When you joined Allstate, it was already a thriving company. Why did you think it was the right opportunity for you, and what did you focus on in the early days?

Before I joined Allstate, I was Chief Financial Officer at Sears, so I knew a lot about Allstate before I came over, and that helped me an awful lot. I loved the brand and the positioning. “You’re in good hands with Allstate” is one of the most recognized marketing slogans for any company in any industry. Furthermore, Allstate has a terrific culture – it’s a can-do culture that embraces change. When I joined, we were spinning Allstate out from Sears, so the need for change was great. An independent publicly held company has to think differently and act differently from a subsidiary of a very large organization. I saw that the culture here could adapt well to change.

The product that we sell is a product that our people can identify with. They know we have a big impact on peoples’ lives in their time of need and as they prepare for the future.

People can be afraid of change, even if they buy into it in principle. How were you able to engage employees in the transformation process?

I think a couple of things helped us. For example, we simplified our message. Part of the process of promoting a strategy is keeping it simple and repeating it often. Our strategy was that we wanted to get better, bigger, and broader in our businesses. We had subsets to that strategy, but people could understand it fairly easily.

In addition, we are a very humane organization, so when we had to restructure the company or its divisions, we did it with great dignity and respect. We helped our people understand what the vision was and what the journey to the endgame would look like. In general, people accepted the changes reasonably quickly. We tried to pace things in such a way that folks would begin to see the benefit of some of the changes we were making early in the game.

One of the changes you implemented was a move toward tiered pricing. Are you happy with how that has worked out?

Yes, we are absolutely delighted about it. We are so much more sophisticated in that area now than we ever were before. We did not invent tiered pricing; it has been around in the mortgage business and some other industries for a very long period of time. But we were early adopters in the insurance industry. The more we moved in that direction, the more our people liked it, because they could see the benefits of it, in terms of growth in revenue and profitability. It also enabled us to develop a very successful product: Your Choice Auto. We wouldn’t have been able to do that if we didn’t have the sophisticated tiered pricing algorithms that we now use. So it has been a home run for us, and it has had a very profound effect on our organization.

What effect has streamlining the agency system had on the organization?

We streamlined our exclusive agency system from a mix of employee agents and independent contractors to a single exclusive agency independent contractor program. That was not an easy process, but today our agents are more entrepreneurial. The exclusive agent independent contractors actually have an economic interest in the book of business that they can sell. If you spend 30 years as an Allstate agent and develop a high-quality book, with good customer relationships, you can realize substantial value when you sell your economic interest in the book. Employee agents didn’t have any transferable interest in the book of business. Thousands have also gotten licensed to sell a broader array of financial services products. That was another very good move for us. Today, we are more profitable with more revenue.

How do you make sure you have all the technology you need to work effectively without losing the human interaction that is so important to the insurance business?

Technology is critical, but it can’t replace people. Let’s face it: we are first and foremost a people business. If you’re a claims representative, you need to have a smile in your voice. If you’re an agent, you need to have continuous contact with your customers. You can’t just call them when you send out the bill or when an accident occurs. So recognizing that this is a people business is really important. Technology enables us to free up agents or claims reps, so they have more time for the human interaction.

Have you invested a lot in upgrading Allstate’s technology platform?

Yes, we’ve made a major investment, and I give our technology folks a lot of credit for what they have done. We can now analyze data and make rate changes more quickly. Our agencies can quote and bind policies and service customers far more easily and quickly. Our technology platform integrates our agencies with our Web site and call centers.

You also put an increased focus on marketing and branding. However, the company already had great brand recognition. Why did you feel it was important to increase that?

We felt that, over time, we had perhaps underinvested in the Allstate brand, as widely recognized as the Allstate symbol is. We also observed that some of the direct players – those who sell insurance products without an agency force – were advertising very heavily, and we did not want to cede any share of our market to those kinds of competitors. By advertising more, and through a multitude of channels, we have raised the stakes for everyone and enhanced our share of voice with consumers.

Along these lines, you also created visibility through sponsorship in the sports arena. Has that delivered the results you were looking for?

Yes, it has succeeded. Sponsorships are part of our strategy to create more energy and more relevance and to help broaden the brand. A lot of the insurance-buying public watches sports, so a simple thing like raising a net that shows the Allstate Good Hands symbol before an extra point in a football game is a very inexpensive way to continue to get the brand in front of consumers. But while we have a lot of sports advertising, we have so much more than that. You’ll generally see our advocacy campaigns on the back page of the front section of the Wall Street Journal or the New York Times. They reach a great audience. The aggregation of all of our efforts in this area has worked very well for us.

Is it challenging to show what makes a brand unique?

Yes. However, while it’s challenging, it’s actually becoming a little bit easier. For example, with our Good Hands Network, customers can purchase our products from Allstate agencies, over the Internet, or through call centers. Our customers are not all the same. How they purchase their insurance depends on their appetite for risk and the nature of the product. Remember, buying insurance is not like going to a store and buying a pair of shoes or a pair of slacks. When you turn your car over to your 16-year-old son or daughter, you may be turning over a major chunk of your net worth. Many customers want to talk to an agent before they make that move. Others are very comfortable purchasing over the Internet or through a call center.

So what we tried to do was let the customers decide how they want to interact with Allstate. Then we beefed up the marketing so that they knew we were available to them in the manner that best suits them. We’re one of the very few companies in the industry that has a fully integrated model that gives the customer complete choice about how to interact with us, as well as a full array of products.

You mentioned that insurance is a people business. Is it hard to attract and retain the talent you need? Do bright graduates see insurance as an exciting career?

We’ve more than held our own in this regard, but the war for talent has gotten more and more acute. It has become tougher to get people into the customer service industries at entry level across the board. We work hard at making sure we have the right environment and the right development and talent management processes for our employees. It helps that we sell a product that is important to people’s lives.

Allstate agency owners also have excellent opportunities. We work hard to attract the right people with a very good value proposition. The fact is, Allstate agents can have a very good lifestyle. They are well connected in their communities, they are local leaders, and they play a role well beyond selling insurance and financial services products. We market that a lot, and we market the economic opportunity. We believe we offer an excellent value proposition overall.

You’re operating in very diverse communities with a very diverse customer base. Is it important for you to build diversity within the workforce?

Yes, and that’s a strength of the organization that goes way back before my time. Maybe it comes from our Sears heritage. Sears built retail stores in metropolitan areas and therefore always focused on diversity. Very early, Allstate adopted that same philosophy. We believe that our employees and agency owners should reflect the makeup of the American population. It enables us to better understand and serve a diverse customer base. We try to attract the best people from all backgrounds and experiences. We believe that different points of view help to develop the best solutions.

What is your approach to corporate social responsibility?

I heard a phrase once: people don’t care how much you know; they want to know how much you care. For an industry like ours, which sells a human-facing product, we have to be able to relate to people. Moreover, the need to reach outside yourself and help people whenever you can is really important to us – it’s embedded in our culture.

We were one of the first companies moving in the direction of community service, and it continues to be a key focus of ours. Through The Allstate Foundation, we’re donating millions each year to make our communities safer and more vital, to economically empower others, and to foster tolerance, inclusion, and diversity. We’re also taking action to help the environment by working to reduce our carbon footprint and our use of paper, for example.

One of the most remarkable things about Allstate is the genuine desire of our employees and agency owners to give back. They lead more than 100 Helping Hands Volunteer Committees, as well as Allstate’s Giving Campaign, which is an employee/agency owner contribution match program that raised nearly $6 million in 2006 for nonprofits. Allstate significantly invests in these initiatives, because we believe it’s important to help improve the communities where we live, work, and do business.

If you think back to when you joined the company, could you have imagined that you would spend so much of your career there?

When I moved to Allstate, I imagined that this would be my career for the next 15 years or so. As I approach retirement, that has proved to be absolutely the right decision. At the end of the day, this is people work. Everyone has to make money – to put food on the table, put the kids through school, and hopefully have something left over to put away for retirement. I’ve been immensely fortunate in this regard. But I think most people also want to feel like they’re doing something good. That’s why people want to work in the pharmaceutical industry – they want to be part of developing therapies that can literally save the world. The insurance industry is sometimes maligned, and yet it does so much good, particularly when there are major catastrophes. We restore people’s lives. So I feel really good about what we do.

I like to say that insurance is the oxygen of free enterprise. You can’t do anything without insurance. If you don’t have automobile insurance, you can’t drive your car; without mortgage insurance, you can’t own a home; office buildings couldn’t get built without insurance; vacations can’t happen, hotels don’t get built, and so on. Early on, I identified that this was an organization in which the economics could be attractive, but working with a sense of purpose was just as important to me.

Do you have any words of wisdom for young people just starting out in their careers, who might look to your success and hope to emulate it?

Some of this may sound cliché, but I think they are important words to live by. I would tell them that you have to know your stuff. You must be ethical in your thought processes and in the way you act. Be flexible. Be a team player. Share your successes and your defeats. Have courage. Have a point of view. It’s very easy to recede into the crowd and endorse the conventional wisdom – you can’t do that. You have to have courage and have a point of view. Beyond that, you have to be able to express that point of view at the right time and in the right way.

I think business provides a lot of opportunities. It’s a fascinating world – it’s diverse, and it’s fast paced. It isn’t always presented that way by the media, but there’s a lot of good in the business world. The world is changing, and enormous growth is taking place. This is a time of great excitement, and for sharp people who can abide by those half dozen principles that I just rattled off, the world is their oyster.

Do you ever take the time to step back and appreciate what you have achieved?

The aging process forces you to realize just how fortunate you’ve been – and I’ve been very fortunate. I had influential people in my life who gave me a chance to fail. Thank goodness, I didn’t – or rather, my mistakes were minor, and they didn’t repeat themselves. I’d like to think I’ve done the same thing for others. I do take great joy in looking at the folks whom I’d like to think I’ve mentored. “Mentor” is an interesting word. Sometimes I think it conveys that you’ve given someone an unfair advantage or more time than you gave to other people. I’ve just tried to give people opportunities. When they’ve needed a pat on the back or a good talking to, I was very comfortable doing either of those things. I take great joy in that.