Geico has its dapper gecko and brooding caveman. Progressive Corp. has Flo, the chirpy sales clerk. And Travelers Cos. has a red umbrella?
Clearly, Travelers, a major player in commercial insurance and the newest member of the Dow Jones industrial average (its induction to the blue-chip benchmark was announced June 1 along with that of Cisco Systems) faces a marketing challenge as it tries to gear up its direct-channel insurance business to compete with Geico (a unit of Berkshire Hathaway) and Progressive.
It’s likely that the property and casualty insurance company will have to endure an extended trial-and-error period — and spend lots of marketing dollars — before it strikes advertising gold, much like Progressive did before settling on Flo last fall, says Vinay Misquith, an analyst who covers the insurance industry at Credit Suisse. (Without an army of agents to market policies, an engaging advertising hook is essential in the direct-channel insurance business.)
That will be a drag on Travelers’ earnings for at least the next two years, Misquith estimates, and that could temper some of the enthusiasm around the company’s stock, which on June 8 will join the exclusive company of Dow Jones components. In an ironic twist, Travelers will replace its former parent, Citigroup, from which it was spun off via IPO in 2002.
“It will be at least two years before [direct-channel insurance] starts contributing meaningfully to [Travelers’] bottom line,” says Misquith. “It’s hard to know how much of a drag it will be” over those two years or to what extent that’s already being reflected in the stock price.
A Safe-Haven Stock?
And as one of the more financially robust insurance companies, with none of the exposure to investment leverage that’s forced so many life insurance and financial-services companies to write down asset values over the past 18 months, Travelers in…