Allstate to agents: Bulk up

By Steve Daniels
Sept. 28, 2009


Allstate Corp. is setting ambitious new revenue standards for its massive
salesforce, sparking agent fears that a large-scale culling of their ranks
is beginning.


The Northbrook-based insurance giant, addressing marketshare losses to
on-line insurers such as Geico Corp. as well as lagging customer
satisfaction, in recent months has set a new expectation that Allstate
agencies have at least $4 million in annual premiums and 4,000 policies
within the next three to five years, according to internal company
communications obtained by Crain's.


With more than 14,000 agents in the U.S. who generated $27 billion in 2008
premiums and deposits, that $4-million standard is more than double
Allstate's current average premium per agency of $1.9 million. It's also
60% higher than the $2.5-million average per agent at the country's largest
auto and home insurer, Bloomington-based State Farm Insurance Cos., which
has more than 17,000 agents.


No one forecasts that Allstate, whose premiums have been essentially flat
in recent years, will double them in the next five years. So the agent
initiative — dubbed the "ideal agency model" by the company — is likely
to
slash the number of agents.


"The agents are fearful their jobs are at stake," says Jim Fish, a former
Allstate agent and executive director of the National Assn. of Professional
Allstate Agents Inc. in Gulfport, Miss., a group representing more than
1,000 agents that has criticized the company over its treatment of its
salesforce. "From the numbers, it appears as though the company wants to
reduce the size of the agency force substantially."


Some agents privately say they think this will be Allstate's biggest agent
initiative since the late 1990s, when former CEO Edward Liddy forced
employee reps to become independent contractors, a move that provoked a
flurry of lawsuits.


An Allstate spokeswoman declines to comment other than to provide a
statement: "Our goal is to help Allstate agencies grow and succeed by
giving them the incentives and tools to provide superior customer service."


Allstate appears to be betting that larger, better-staffed agencies —

albeit fewer of them — will provide better service to customers and keep

them from straying to competitors despite rates that generally are higher
than its rivals'. Larger agencies also could be better able to provide
service to the growing number of U.S. consumers who prefer to buy insurance
directly from insurer Web sites rather than agents, a trend analysts expect
will persist.


"It is strikingly impressive that the company has so many feet in the
street selling the Allstate brand," says Gregory Peters, an analyst at
Raymond James & Associates Inc. in Chicago who has a strong "buy" rating on
Allstate stock. "But the reality is some of those people are coasting. . .
. They're just drawing a renewal check."


"(Allstate) is trying to consolidate them," Mr. Peters says.


Allstate has suffered as the economy has tanked, spurring more consumers to
shop for cheaper policies. Its number of auto policies has declined for six
straight quarters, while those of Maryland-based Geico, Ohio-based
Progressive Corp. and even State Farm, which pursues the same agent-led
sales model as Allstate, have risen.


In Illinois, Allstate's auto-liability insurance revenue fell last year for
the first time this decade, dropping 3.6% to $338 million, according to
data filed with the Illinois Department of Insurance. Geico's, by contrast,
rose by 15%, and State Farm's increased 2%.


"We cannot make just incremental progress, we need dramatic change," wrote
Joe Richardson, Allstate's senior vice-president for sales and customer
service, in an August note to agents. "Regardless of how we measure it, our
customer loyalty is below average."


Allstate is betting improved customer service, and better integration of
its Web site and call-center operations with its agents, will lure more
customers despite its higher prices. Its refusal to match rivals' past rate
cuts has made its auto insurance business the most profitable of the four
biggest players in the business.


But some analysts believe Allstate will find it tough to reverse its
marketshare slide in auto, by far its biggest business, accounting for
nearly 60% of revenue last year.


Sales of auto insurance online or over the phone accounted for 24% of total
sales in 2007 vs. 17% a decade earlier, New York-based Goldman Sachs Group
Inc. analyst Christopher Neczypor noted in a Sept. 11 report. "Captive
agents appear to be at the biggest disadvantage. Allstate is thus losing
share in personal auto, a trend that may accelerate as consumer shopping
remains elevated," he wrote.


He slapped a "sell" rating on Allstate stock, which has more than doubled
since March — it closed at $29.23 on Friday — on improved investment

results.


©2009 by Crain Communications Inc.