Allstate Layoffs
Allstate to layoff "thousands" of staff
In an attempt to cut its costs, major US insurer Allstate Corporation is planning to layoff thousands of jobs, according to reports.
In a recent video conference call, Allstate global CEO Tom Wilson told senior team leaders that “thousands of jobs” at all levels of the company’s operations will be affected by the layoffs. The chief executive added that more details regarding the layoffs will come soon.
Bloomberg reached out to an Allstate representative for comment on the matter, but did not receive a timely response.
According to a US Securities and Exchange Commission filing, Allstate employed 45,780 as of the end of 2019.
It was speculated in the Bloomberg report that the company may be preparing for a “price war” against its major competitor, State Farm. State Farm is dropping its insurance rates by 11% on average throughout the US – rates in Illinois will fall almost 14% on average – next month.
The Allstate Layoff: Warnings, Consequences, and the Future
Although most companies have laid off or furloughed employees due to the pandemic and the ensuing economic chaos, this is not the case for Allstate. The layoff is a result of a broader strategic plan to shift focus to a direct sales model that minimizes cost and maximizes revenue. A shift of focus this drastic is not unprecedented though. Nationwide shifted from a captive to an independent carrier very recently. First Nationwide, now Allstate; all fingers point to a drastic shift in how insurance is brokered. We have already looked into Goosehead Insurance and Brightway Insurance Franchise, now it’s time to look into Allstate.
The writing on the wall: Recognizing the signs of the Allstate layoff
Smart agents had already seen the writing on the wall and were looking to exit before this happened. Others had a less-than-pleasant experience. The biggest sign that was the most visible was the shifting consumer preferences and behavior.
Retention is important, but new clients are also as important. The new insurance clients are tech-savvy, digital-age millennials and the insurance industry needs to adjust to them, not the other way around. What started with Nationwide and now compounded with Allstate is just the start, more is yet to come.
More specific signs were also present for those that could see it. The Allstate payroll processing changes a few years ago, shifting the payday at the start of the week to the end of the week, the recent arbitration agreement Allstate made its employees sign, all of these pointed to a major overhaul in the workforce.
Another big sign was Allstate’s partnership with Esurance, looking to leverage their established direct insurance selling experience. The ongoing acquisition of National General to make it Allstate’s independent agency platform is the logical next step in the direction insurer wants to go.
Why did the Allstate layoff happen?
The Allstate franchise layoff is not a result of the pandemic and subsequent downsizing. Whether or not the pandemic happened, Allstate would have still laid-off employees.
The Allstate franchise, like any corporation, is profit-minded. This is a huge shift from Allstate’s approach, moving directly from a captive carrier to a direct-to-customer focused one. While announcing the layoffs, Allstate’s CEO Tom Wilson specifically cited GEICO’s and Progressive rapid growth in the direct-to-customer auto-insurance market as a major reason for this shift.
Captive agencies are only profitable in the rural areas of the US, and this adage is further reinforced through a quick glance at allstatefrosale.com. The rural areas of the US are where there are very few (or none) Allstate franchise agencies listed for sale. On the other hand, more urban hubs like Texas, California, and Florida have an exorbitant number of listings.
Captive agencies have a large amount of the traditionally trained workforce, rather than a tech-centric one. A quick look at online forums show that most that have been laid off have been over 40, with the company for years, heading it in the direction that was previously their focus. This the workforce getting overlooked during the overhaul.
What does the Allstate layoff mean for Allstate agents?
Allstate is not giving up its captive model; they are just making it extremely difficult for their captive agents to grow. Allstate agencies will now be competing directly with Allstate, making them their biggest competitor. What does this mean for the agent?
For starters, it is going to be very hard to find and retain customers. Direct-to-customer has several benefits (cost-wise). GEICO is known to be one of the cheapest auto insurance alternatives. Whatever happens, one thing is for sure: Allstate is cutting down a lot of operational costs with this move. Additionally, direct selling enables the insurer to provide packages and discounts that might not be available through their captive agents, making the option much more viable to the customer.
In fact, several announcements have already been made which points towards Allstate going the same direction as Nationwide, which is a consolidation of agencies which favours the bigger ones over their smaller counterparts. Direct channels are also offering 7% discounts on policies bought through the channel, making it more difficult for agents to sell the same products to their customers.
Post layoff, Allstate also reduced the commission rate for agents (-23% on new commissions and –10% on renewals). Coupled with the fact that they are consolidating Encompass and Allstate Independent Agency, and their recent acquisition of National General, makes it clear that they favour independent and direct channels over their traditional captive approach now.
What does the Allstate layoff mean for Allstate insureds?
Allstate franchise is looking to shape itself on the GEICO model. Cheap premiums, fast binding, but also a notoriously difficult claim process, and a generic, impersonal service model. Customers can expect cheaper prices, especially compared to other captive insurers, but the servicing (one of the departments seeing the biggest cut) will not be as good as it used to.
Where does insurance go after the Allstate layoff?
One thing is clear: changing customer models is forcing insurance to shift out of the traditional model of operation, and adapt to the times and needs of customers. Today it is Allstate and Nationwide, tomorrow it can be bigger names like State Farm and Farmers. It was a given that independent insurance agencies were more favored than their captive counterparts, but now, even the direct model is more appealing to the industry leaders, so much so that they cut 8% of their workforce to implement it.
Agents need to be smart in this climate. They need to adjust to the needs of the market. Previously, agents were salespeople; they would try to convince insureds to buy policies and handle the paperwork. The times are forcing agents to evolve. With the advent of an internet-centric marketplace, expertise is the main selling point today. Adding value to the customer’s buying journey is important, and agents are becoming risk advisors more than paper pushers.
The Allstate franchise layoff has forced agents to find their footing. Many agents are opening their own agencies after mentoring under someone experienced. There are also various agencies trying out new and innovative business models that value agents and insureds simultaneously.
A new hope: Innovative business models, agent-centric processes & top-of-the-line tech.
It looks increasingly like Allstate agents are getting the short end of the stick. The big ones will flourish, yes. But the smaller ones will be hamstrung, having to face competition not just from other brands, but also their parent affiliate. If you were unsure about the need to switch from captive to independent, this should be a wake-up call. With the cut to servicing and support jobs, agents can expect a reduction in the degree of support that Allstate initially used to provide.
However, you don’t have to stick to Allstate; independent agency models have their own innovators. Agency Height has affiliated itself with one such leading innovators.
Agency Height has partnered with Covered by SAGE, a new and innovative tech-centric agency conceptualized with the agent front-and-center. How do they help agents?
- They are tech-centric and have a proprietary insurance agency platform.
- Extensive training for their agents to switch from a captive to an independent ecosystem.
- They offer the best economics in the market today.
- Agents get access to over 70 leading carriers and MGA’s in the industry.
- They have a vision that provides stability and the opportunity to grow.
5 Lessons Insurers Can Take From Allstate’s Job Cuts
The fourth-largest car insurance company, Allstate Corp., cut 3,800 jobs on Wednesday, representing 8% of its workforce. Part of this can be attributed to structural changes stemming from last December designed to boost growth. The idea was to phase out the Esurance brand and combined several of its acquisitions into a single unit.
But it’s unlikely that so many jobs would have been pruned away had it not been for the devastating economic effects of the coronavirus. Lower interest rates are also eating away at insurance income.
Increased M&A activity and reduced revenue is typical during periods of economic crisis. But cutting jobs should be a last resort, and kept to a minimum. Here, we offer some suggestions of other effective steps insurance companies can take to reduce costs:
1. Close More Sales, Faster
Many of Allstate’s job cuts affected sales functions. Yet the reality remains that without sufficient insurance sales agents, it will be difficult to continue to maintain revenue growth. The good news is that today’s insurance sales agents can be easily equipped for maximum efficiency and productivity. Gone are the days when selling auto insurance meant meeting face-to-face. Today’s agents can use phone and text-message-based communications methods to reach prospects wherever they are, using channels that are convenient for them. This means that a single agent can sell to far more customers than ever before.
2. Streamline Claims
Claims teams were also heavily impacted by Allstate’s job cuts. Part of this was due to the reality that lockdowns mean fewer cars on the road, which means fewer accidents and fewer auto claims payouts. But there are many ways for auto insurance companies to improve the cost-effectiveness of the claims cycle.
One way is by reducing the likelihood of customer churn due to a poor claims experience. The average car owner files a claim just once every 17.9 years. That means the stakes are very high for insurance companies to prove themselves. A First Notice of Loss (FNOL) process that requires customers to go through multiple channels (e.g., email, scanner, phone, fax), or fails to update customers as to the status of their claim, or makes it difficult to send supporting information at a later time will increase the probability of the customer churning. On the other hand, nailing the claims journey with excellent CX and streamlined, transparent processes will buy the insurance company another 17.9 years of loyalty.
Another way to improve the cost-effectiveness of the claims cycle is by cutting out the unnecessary paperwork overhead. Providers lose time and money due to not-in-good-order (NIGO) documents, chasing customers for documents, and working with fax machines, printers, and other outdated tools.
3. Invest in Customer-Facing Technology
As mentioned in the previous point, reducing or eliminating physical paperwork can significantly reduce bloated costs. A recent McKinsey study found that switching to digital and automated processes can reduce the cost of individual processes by up to 80%. Switching to fully digital, mobile-optimized forms, document collection, eSignatures, and payments might initially be an added cost, but in the medium- to long-run, there are significant savings to be had thanks to efficiency and CX wins.
4. Get Serious About Fighting Auto Insurance Fraud
In addition to adopting customer-facing technology to streamline interactions, McKinsey recommends investing in behavioral analytics and automatic fraud detection tools. According to FBI estimates, non-health insurance fraud stands at a whopping $40 billion each year. Of this amount, around $30 billion is property and casualty fraud.
For auto insurers who are eager to sell insurance plans at competitive prices, fraud should be a major focus. P&C insurance fraud costs the average U.S. family between $400 and $700 per year in the form of increased premiums. Preventing fraud prevents insurance price hikes.
5. Reimagine the Role of Employees
With less paperwork to chase and file and more streamlined digital processes, insurance company employees may find themselves with more time on their hands. That’s a good thing. Automation and digitization don’t mean job cuts are inevitable, but it does need that jobs need to be reimagined to bring more value to policyholders and the business itself.
This may mean that sales and claims teams need to be trained to think and act more like trusted advisors, and less like bureaucrats. All the time these employees used to spend on filing paperwork and coordinating choppy processes can now be spent on creating a more delightful and memorable experience for the customer. Over time, insurance companies who take this approach will find themselves attracting and retaining far more customers and therefore revenue.
Before Cutting Jobs, Cut Costs
Of course, there may be instances when job cuts are the painful but necessary part of keeping the business going. But most would agree that it should be a last resort when other options have been attempted and prove insufficient. Expediting sales processes, streamlining claims, investing in customer-facing technology, cracking down on fraud, and elevating the role of insurance employees are all ways auto insurance providers can maximize their ROI and minimize costs.
Allstate to Cut 3,800 Jobs as Latest Step in Multi-Year Growth Plan
The Allstate Corp. said it will cut approximately 3,800 jobs in claims, sales, service and support functions as part of its continuing plan to grow its property/casualty market share. The layoffs will affect about eight percent of the insurer’s 45,780 workforce.
“Implementing this plan is difficult as we still deal with the impact of the pandemic but necessary to provide customers the best value. We have expanded transition support for impacted employees including prioritized internal hiring, extended medical coverage, expanded retraining support and help in employment searches,” said Tom Wilson, chair, president and chief executive officer, in prepared remarks.
As a result of these restructuring actions, Allstate said it expects to incur a charge totaling approximately $290 million, with approximately $210 million to $220 million to be recognized during the third quarter of 2020, $50 million to $60 million to be recognized in the fourth quarter of 2020 and any remaining charges to be recognized in the first half of 2021. These charges will reduce both net income and adjusted net income. Severance and employee benefits are the primary costs (about $210 million).
Additionally, Allstate said it expects to incur real estate exit costs of approximately $80 million resulting from office closures.
The job cuts stem from a multi-year growth strategy— the Transformative Growth Plan— that calls for expanding customer access, enhancing the customer value proposition and investing in marketing and technology while making Allstate agency distribution more effective and efficient. A key element involves cost reductions from streamlining and restructuring.
As part of the plan, online seller Esurance is being integrated into the Allstate brand to reposition the Allstate brand for broader customer access and leverage Esurance’s direct distribution expertise.
In addition, the pending acquisition of National General for about $4 billion is expected to accelerate Allstate’s strategy to increase market share in personal property-liability and significantly expand its independent agent distribution, said CEO Wilson when the deal was announced in July. National General will become the insurer’s independent agency platform, absorbing independent agency subsidiary Encompass and Allstate’s independent agent businesses. National General will add 42,000 agents to the 10,000 Allstate and Encompass independent agents. The acquisition will double Allstate’s premiums from the independent agency channel to 15%.
According to Wilson, the revamps underway reflect, in part, an unhappiness about how Allstate has been performing compared to its biggest rivals, despite an overall solid performance. Allstate concluded 2019 with nearly $4.7 billion in net income versus $2 billion during 2018.
“We’re growing, but GEICO and Progressive are growing auto insurance market share faster, through massive advertising spending and low-cost structures,” Wilson stated late last year.
The broad idea, Allstate has said, is to lower costs, support more competitive pricing without reducing margins, and free up funds for more marketing.
“The plan builds on our strengths,” Wilson has said. “Our plan recognizes that customer needs are changing, due to increased connectivity and advanced analytics. Our leading positions in telematics and digital auto collision estimates are two examples of how we are embracing these changes.”
He noted that most Allstate customers still prefer agents – “we hope an Allstate insurance agent when purchasing a policy” – but many are also comfortable with self-service.
The plan has also led to a shift in agent commissions, with some of the variable compensation traditionally used for agent renewals being moved to new business, in a bid to incentivize growth.
Wilson emphasized that the whole plan will take “multiple years to do.” While expense reductions and more marketing will come first, the next step will be redesigning Allstate’s property/liability products with innovative ideas, along with investing in new technology to improve product management and customer experience.
In the end, Wilson said, Allstate wants to give customers multiple ways to buy its signature products.
“This is not an “or” conversation. It is an “and” [conversation],” he said. “We want to sell as much as we can to as many people as we can, using as many ways as we can.”
Insurer Allstate to cut nearly 8% of workforce under restructuring plan
Allstate To Lay Off 3,800 Employees
Northbrook-based Allstate announced Wednesday that it will be laying off 3,800 employees – or 7.5 percent of its workforce – as part of a restructuring plan.
Allstate announced that the layoffs will primarily affect employees in claims, sales, service, and support functions.
"Implementing this plan is difficult as we still deal with the impact of the pandemic but necessary to provide customers the best value. We have expanded transition support for impacted employees including prioritized internal hiring, extended medical coverage, expanded retraining support and help in employment searches," Allstate Chair, President, and Chief Executive Officer Tom Wilson said in a news release.
The layoffs come alongside amid a multi-year Transformative Growth Plan for the insurance company. The plan calls for an increased market share for Allstate through expanded customer access, more competitive prices, and investments and marketing in technology.
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