Although most companies have laid off or furloughed employees as a result of the pandemic and the ensuing economic chaos, Allstate has not. The layoff is part of a larger strategic plan to shift focus to a direct sales model that reduces costs while increasing revenue. However, such a drastic shift in focus is not unprecedented. Nationwide recently transitioned from a captive to an independent carrier.
|Allstate Layoffs : Warnings, Repercussions, and the Future|
First Nationwide, now Allstate; all signs point to a significant shift in the way insurance is arranged. We've already investigated Goosehead Insurance and Brightway Insurance Franchise, so it's time to investigate Allstate.
Recognizing the Early Warning Signs of an Allstate Layoff
Smart agents had seen the writing on the wall and were planning their escape before this happened. Others had a less than positive experience. The most visible indicator was the shift in consumer preferences and behavior.
Client retention is important, but so are new clients. The new insurance customers are tech-savvy, digital-age millennials, and the insurance industry must adapt to them rather than the other way around. What began with Nationwide and has now been combined with Allstate is only the beginning; more is on the way.
For those who could see it, more specific signs were also present. Allstate's payroll processing changes a few years ago, shifting payday from the beginning to the end of the week, and the recent arbitration agreement Allstate required its employees to sign all pointed to a major workforce overhaul.
Another significant indicator was Allstate's collaboration with Esurance, which aimed to leverage their established direct insurance selling experience. The ongoing acquisition of National General to transform it into Allstate's independent agency platform is the logical next step in the insurer's strategy.
What caused the Allstate layoff?
The layoffs at Allstate are not the result of the pandemic and subsequent downsizing. Whether or not the pandemic occurred, Allstate would have laid off workers.
The Allstate franchise, like any other corporation, seeks to maximize profits. This is a significant departure from Allstate's previous strategy, which was based on a captive carrier. Allstate CEO Tom Wilson specifically cited GEICO and Progressive's rapid growth in the direct-to-customer auto-insurance market as a major reason for this shift when announcing the layoffs.
Captive agencies are only profitable in rural areas of the United States, as evidenced by a quick look at allstatefrosale.com. There are very few (if any) Allstate franchise agencies for sale in rural areas of the United States. More urban areas, such as Texas, California, and Florida, on the other hand, have an exorbitant number of listings.
Captive agencies rely heavily on a traditionally trained workforce rather than a tech-savvy one. A quick search of online forums reveals that the majority of those laid off were over 40 and had been with the company for years, steering it in the direction that was previously their focus. During the overhaul, the workforce was overlooked.
What does the layoff at Allstate mean for Allstate agents?
Allstate is not abandoning its captive model; rather, they are making it extremely difficult for captive agents to grow. Allstate agencies will now compete directly with Allstate, making them their most serious rival. What does this have to do with the agent?
For starters, finding and retaining customers will be extremely difficult. Direct-to-customer marketing has several advantages (cost-wise). GEICO is well-known for offering some of the most affordable auto insurance options. Whatever happens, one thing is certain: Allstate is reducing operational costs significantly with this move. Furthermore, direct selling allows the insurer to offer packages and discounts that may not be available through captive agents, making the option much more appealing to the customer.
Indeed, several announcements have already been made that point to Allstate following in the footsteps of Nationwide, which is a consolidation of agencies that favors the larger ones over the smaller ones. In addition, direct channels are offering 7% discounts on policies purchased through the channel, making it more difficult for agents to sell the same products to their customers.
Allstate also reduced the commission rate for agents following the layoff (-23% on new commissions and -10% on renewals). With the consolidation of Encompass and Allstate Independent Agency, as well as their recent acquisition of National General, it is clear that they now prefer independent and direct channels over their traditional captive approach.
What does the layoff at Allstate mean for Allstate customers?
The Allstate franchise is attempting to emulate the GEICO model. Low premiums and quick binding, but a notoriously difficult claim process and a generic, impersonal service model. Customers can expect lower prices, especially when compared to other captive insurers, but service (one of the departments suffering the most cuts) will be less than it used to be.
What happens to insurance after the Allstate layoff?
One thing is certain: changing customer models are forcing insurance to abandon its traditional business model and adapt to the times and needs of customers. Today, it's Allstate and Nationwide; tomorrow, it could be State Farm and Farmers. Independent insurance agencies were always preferred over captive counterparts, but now the direct model is so appealing to industry leaders that they cut 8% of their workforce to implement it.
In this environment, agents must be astute. They must adapt to the market's demands. Previously, agents were salespeople who tried to persuade insureds to purchase policies and handle the paperwork. Agents are being forced to evolve as a result of the changing times. With the advent of an internet-based marketplace, expertise is now the primary selling point. It is critical to add value to the customer's purchasing journey, and agents are increasingly becoming risk advisors rather than paper pushers.
The Allstate franchise layoff has forced agents to re-establish themselves. Many agents are starting their own agencies after being mentored by an experienced agent. Various agencies are also experimenting with new and innovative business models that value both agents and insureds.
A new ray of hope: innovative business models, agent-centric processes, and cutting-edge technology.
It appears that Allstate agents are getting the short end of the stick. Yes, the big ones will thrive. However, the smaller ones will be hampered because they will face competition not only from other brands, but also from their parent affiliate. If you were on the fence about switching from captive to independent, this should be a wake-up call. With the reduction in servicing and support jobs, agents can expect a reduction in the level of support that Allstate previously provided.
However, you are not required to use Allstate; independent agency models have their own innovators. Height has partnered with one of these leading innovators.
Agency Height has joined forces with Covered by SAGE, a new and innovative tech-centric agency designed with the agent in mind. How do they assist agents?
- They are focused on technology and have developed their own insurance agency platform.
- Extensive training was provided to their agents in order for them to transition from a captive to an independent ecosystem.
- They have the best economics on the market right now.
- Agents have access to over 70 of the industry's leading carriers and MGAs.
- They have a vision that provides stability as well as opportunities for growth.