WASHINGTON — When Thomas Wilson, chairman and CEO of Allstate Insurance Co., scans the economic horizon, he sees a landscape that requires adaptation: Real estate remains in the dumps, car sales are sluggish, the unemployment rate is stubbornly high and the economy remains questionable.
"We don't think there is any exact parallel to what this next decade will look like," said Wilson in an interview during a recent trip to the nation's capital.
Allstate and its competitors face daunting challenges. With fewer homes and cars being sold, volume growth in insurance policies — 80 percent of Allstate's business — is no small task.
And as baby boomers near retirement age, insurers have expanded aggressively into retirement products such as annuities. But now boomers are struggling, many forced into unexpected early retirement, while others now expect to work longer to make up for lost savings.
As CEO of the one the world's largest insurers, Wilson occupies a unique perch from which to view the U.S. economic storm. Here are some of the plainspoken Michigan native's views, edited into a question and answer format.
Q: Allstate recently conducted a "heartland'" poll that registered a sour mood among consumers. What was troubling?
A: "This time 48 percent of the people have said they actually spent less and cut back on major purchases. Three months ago, about 70 percent said they were probably going to spend less. So what you're seeing is the concept turning to reality. A third of the people had to dip into savings or retirement accounts to make ends meet,"
Q: You also found a dangerous erosion of trust?
A: "Middle-class Americans just don't believe in the business community or the government, and they're pointing fingers at both of them. It's not just one of them. Half of the people don't trust corporations, unions or banks. If you ask them how do you think politicians are doing, 80 percent rank their politicians as fair or poor... I think that's a problem because in a free market and a democracy, you have to have people believing in institutions. This ought to be a wake-up call."
Q: How are consumers of insurance changing their habits?
A: "They feel like they're being forced to take more risk because of the economic box they're in. So when they come to us, they are raising their deductibles because they don't have any money (to pay higher premiums). It's clearly impacting their purchasing behavior. Sort of, 'I've got to manage my budget so I have to write the check, but I'd rather not.' I think they're feeling that they're being forced to take on more (out-of-pocket) risk when they don't want to."
Q: Customers are signaling a break from the past?
A: "They look forward and they see it
's not going to be the same (as it was before), nobody is telling me there is going to be a whole bunch of new jobs, nobody is saying they're going to raise wages. They don't see that, and they haven't seen that really over the last decade. That's why they are saying this (recovery) is going to be different."
Q: You're not too bullish on chances for a sharp rebound?
A: "I think the economy has stopped shutting down, but you are seeing people getting by with less on what are 'postponable' purchases. So there are certain parts of the economy which aren't doing well. I don't think car purchases are going to get back to 16 million (vehicles annually) anytime soon. But they're not going to stay at 10 million, just if you look at the number of cars that break, get old, fall apart, they've got to replaced."
Q: Allstate manages a $100 billion investment portfolio. What changes are you making amid a sluggish recovery?
A: "We are continuing to ... reduce our investment in commercial real estate. We have also begun to be more selective and reduce our investment in municipal government _we own about $23 billion in municipal bonds, we've been bringing that number down because of ... the lack of fiscal responsibility, the revenue problems in the states and municipalities around the country."
Q: And on the positive side?
A: "When you look at things we're investing in, we still think there are lots of good corporations that are doing well and can grow. We've invested more money overseas in more growth markets, because that is obvious and an option for us. If you look and ask on a macro basis ...we don't think real estate is going to rebound, otherwise we'd be putting more money into it. We don't think that state and (federal) government spending is going to drive it, so we don't see a big growth in employment. For the unemployment rate to go down, the growth rate of demand has to outpace the growth rate in productivity (the amount of output per worker), and we don't see that happening ... We think unemployment will be high for awhile."
Q: Is a "new now" emerging?
A: "What I do think we will see is a resetting of the bar, that consumers will bring their debt levels down. And I think that's a good thing. If you look at Americans, they owe more than they make in a year. Even if you exclude their mortgages, they owe about two and half months of income. And that's too much. If we could get the savings rate up, that would help us ... generate more growth for us, but I don't see it being an employment-led recovery. We're thinking it's going to be slow for a while."
Q: Do you support provisions in the proposed revamp of financial regulation that would create an Office of National Insurance? Critics warn it's a step toward the end of state regulation of insurance and the start of federal regulation of the industry.
A: "We're in favor it, we think it's the right thing to do. We're also in favor of a federal charter (for insurance) just like banks have a federal charter. Having to do it in 50 different regulatory environments in this domestic economy is expensive and we pass that back onto the consumer. If we're looking at rolling out a new motorcycle product, whatever the technology, the cost (from multiple-state regulation) is 50 percent to 60 percent of the cost because I have to do it differently in 50 states."
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