The Allstate Layoff: Warning Signs, Consequences, and the Way Forward

2020 has been a turbulent year for all industries; insurance has not been exempted. Initially spared as large of an effect as the hospitality industry due to the nature of its work, recent news, namely the Allstate layoff, has truly shaken the industry to its core.

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.

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The writing on the wall 

Smart agents had already seen the writing on the wall and were looking to exit before this happened. For others, it has been a less-than-pleasant experience. The biggest sign that was the most visible was the shifting consumer preferences and behaviour.  

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.  

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Why did it happen? 

The Allstate 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 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 this 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.  

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 What does this mean for Allstate insureds?

Allstate 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 from here?

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 layoff has forced agents will need to find their footing. Many agents are opening their own agencies after mentoring under someone experienced. There are also various brokerages trying out new and innovative business models that value agents and insureds simultaneously.

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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 brokerage conceptualized with the agent front-and-center. How do they help agents?

  • They are tech-centric and have a proprietary insurance brokerage platform.  
  • Extensive training is provided to their agents for the 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. 

If you’re interested, you can learn more about Covered by SAGE through their website. If you’d like to talk to one of their representatives, you can also schedule a call today. 

Going independent has never been easier

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