Welcome Companies Consumer Information Consumer Survey
Claim Experiences Press Releases Speakers' Corner Related Links Home
.....Below are some extracts from a very long article which is reported to be from the 2/10/95 of fortune Magazine. Consumers should ask themselves if this is the kind of company they would want to be dealing with if they had suffered a disaster and were depending on their insurance company to help reconstruct their lives as best they can. You should ask yourself what are the consequences of ignoring this kind of business practice
INVESTIGATION
STALKED BY ALLSTATE
Being an agent for the giant insurer can be tough -- even terrifying. An extraordinary war between a company and its own troops is only getting fiercer.
RICHARD BEHAR
REPORTER ASSOCIATES JANE FURTH AND TRICIA WELSH
I asked nicely. I gave plenty of time even though my life is in danger.
Appointment set for [December] 14th with Texas Dept. of Insurance...I strongly believe the only way this will turn out correctly where the truth will come out and there will be a beneficial conclusion for all parties concerned is if Wayne Hedien takes one day out of his busy schedule to personally meet with some of these [agents] and offer them protection to tell the truth...I asked nicely. I gave plenty of time even though my life is in danger. --Letter from Allstate agent Myles Barchas to CEO Wayne Hedien, November 1993 Barchas made a trip to Dallas yesterday and is on the move again this morning...The surveillance lost him for awhile in traffic and had to set up on his apartment and office in hopes of relocating him...The intelligence that has been picked up is that Barchas may be headed to the State Insurance Dept. in Austin. Instructions were given to stay on him. --Allstate corporate security internal memo, December 1993
Barchas's evidence resulted in Allstate's paying what was then the largest insurance fine in Texas history.
Myles Barchas had become one of Allstate's top-selling salesmen--the best in the 550-agent Dallas region--by his 29th birthday in 1993. Working seven-day weeks, he had amassed 3,200 customer accounts, nearly twice the company average. Allstate, headquartered in Northbrook, Illinois, showered Barchas with awards and honors and free exotic vacations that he never had time to accept.
Then one day Barchas's world exploded. Deeply disturbed that his superiors were ordering agents to break state laws that protected consumers from discrimination, he began to blow the whistle. Though the company never admitted doing anything wrong, Barchas's evidence resulted in Allstate's paying what was then the largest insurance fine in Texas history. But Barchas paid too. He was stalked and chased by private eyes for periods spanning six months, according to internal company documents. And with the flick of a computer switch, Allstate took away his business.
Carolyn Penzo, who has spent her life savings of $200,000 to keep an Allstate office afloat
Consider also the case of Carolyn Penzo, who has spent her life savings of $200,000 to keep an Allstate office afloat in rural Georgia. Penzo, 48, is called a neighborhood office agent (NOA), a title shared by roughly 80% of the sales force. That means she's an Allstate employee, unlike Barchas, who was (at least on paper) an independent contractor. Even so, when she started in 1989, Penzo's manager told her to expect to break even in a few months and to earn a six-figure income by 1991, provided she plowed her own bucks into the company's business--money she had saved from 20 years of working at Sears Roebuck, Allstate's former parent.
Penzo received awards and accolades from Allstate for her performance. But internal documents suggest she was doomed to fail. A cash-flow analysis done for her benefit by Allstate in 1991--when she was supposed to have reached six-figure pay--predicted she would have to invest as much as $100,000 just to run the office and pay herself a small salary for the next three years. When Allstate refused to give her a copy of the analysis, claiming it was inaccurate, she began pleading and complaining to her superiors. When that got her nowhere, she began filing lawsuits and organizing agents around the country to do the same. Last year Penzo and other witnesses began to observe strange vehicles staking out her office. Police traced one of them, a silver van with smoked windows and a Florida license plate, to a surveillance agency that says it handles "only insurance-related investigations" for Allstate and other companies.
It is one of the ugliest worker-management face-offs in a major U.S. company, and it is only getting worse
Such are two skirmishes in Allstate's continuing war with its agents. Featuring private eyes, high-speed chases, nasty lawsuits, and threats of violence, it is one of the ugliest worker-management face-offs in a major U.S. company, and it is only getting worse. While the company insists relations with its agents are excellent, war is not too strong a term for the situation: A senior Allstate executive has used it internally to characterize the relationship.
How bad is it?
How bad is it? Confidential employee opinion surveys reveal that nearly two-thirds of employees are not confident the company tells them the "straight story." The surveys were conducted on four occasions since early 1994, with consistent results, within Allstate's personal property and casualty unit, which generates nearly 80% of the corporation's sales. Earlier this year agents secretly helped a Wall Street Journal reporter expose an issue they had been trying to get management to acknowledge for years: that training seminars linked to the notorious Church of Scientology were widespread in Allstate during the late 1980s and early 1990s. In Florida agents are attempting to unionize. In New York some struggling agents filed a class-action racketeering suit against Sears; a judge dismissed it in March, and the agents are appealing. More troubling for Allstate is a class-action lawsuit in California, where upwards of 3,000 agents are seeking to recover tens of millions of dollars in unreimbursed costs. Allstate may be vulnerable because California is one of few states where labor laws call for "indemnification" of an employee's expenses and losses.
"There is a storm coming"
One of Allstate's high-ranking executives, Robert Springer, last September co-drafted a letter to CEO Jerry Choate and to a group of 1,600 Allstate agents that begged the two sides to meet. "There is a storm coming," the draft warned, "and if we are going to make a positive attempt to heal this great company, a sense of urgency is dictated. Gentlemen, this is a war we have put ourselves into, no less...Before we can truly devote ourselves to the customer, insured or stockholder, we have to heal our own family."
the company has proven to be a ferocious adversary.... It's a common enough approach, but Allstate pursues it with special vigor:
Healing will be a big job. While many agents are financially successful, many others are barely hanging on. In recent years many agents have filed personal lawsuits against Allstate, resulting in sealed settlements. When cases do get to court, the company has proven to be a ferocious adversary--delaying cases, withholding documents, filing voluminous motions, running up everybody's legal bills. It's a common enough approach, but Allstate pursues it with special vigor: In June Arizona's supreme court admonished Allstate for "tactics" against a former agent that "in the long run, can only serve to cause disrespect and other harm to the civil justice system." It urged Allstate to focus on the merits of cases rather than try to "trip" its opponents "with technicalities." Various Allstaters believe they have been stalked simply because they are whistle blowers, litigants, or highly paid employees whose managers, they claim, have harassed them into involuntary retirement in order to take their businesses away.
But top executives know the story isn't so rosy.
What's going on here? Allstate appears to be in fine form. In the contest for market share, it gets the silver medal behind State Farm in auto premiums (19% vs. 10%) and in homeowner's (24% vs. 12%). Sears sold 20% of Allstate's stock to the public two years ago in the largest initial public offering in U.S. business history. The remaining 80% was spun off for $11 billion last June, making Allstate the nation's largest publicly traded insurer. The balance sheet looks good: Despite big losses from the California earthquake, Allstate last year earned $484 million on $21 billion in revenues; analysts expect those profits to triple this year. An August cover story in Barron's gushed that the insurer's shareholders were now "In Better Hands."
But top executives know the story isn't so rosy. An internal document from last May deals with customer service and public perception: "If you compare our service with the rest of the industry, we're not very good. Our satisfaction levels need to be much higher...Claim satisfaction has also dropped...Company image is a problem. The general public--not just Allstate insureds--seem to have a negative impression of us...Those comments [in focus groups] reflect our poor reputation...We need to get the message out that we're better than what most people have heard or think."
shareholders and even company directors rarely get wind of the troubles
More important, shareholders and even company directors rarely get wind of the troubles with the agents, which began to grow serious about a decade ago, when Allstate faced up to a problem: It was in a highly competitive, mature business, and costs were getting out of hand. The bad blood is traceable one way or another to the company's efforts--some predictable, others extraordinary--to squeeze costs and boost profits. The same forces have affected other insurers, many of which are also experiencing friction with sales agents. But the hostilities seem markedly greater and deeper at Allstate.
The company wholly and vehemently denies that it stalks or harasses agents.
The company wholly and vehemently denies that it stalks or harasses agents. "We do not do surveillance," says Jack MacKay, an assistant vice president for legal affairs. "People make mistakes once in a while around here, but people don't do that kind of thing. It's suggestive of an invasion of people's privacy where there would generally be no real reason for it." He acknowledges that Allstate authorized the surveillance of Myles Barchas, but says that is the only time in his 17-year career such a thing has happened, to his knowledge. Yet a former company security officer, in a sworn deposition two years ago, referred to surveillance as "standard operating procedure" that Allstate utilizes "if it's required."
MacKay also dismisses the notion that Allstate has serious problems with its agents, arguing instead that a small, disgruntled minority are whipping up conspiracy theories. "It's a tough industry, and I suspect some people are going to struggle and some people are going to fail," he points out. "Do we have agents out there who are unhappy with the company? Absolutely. How many? I don't know. [But] the relationship between the company and its agency force is absolutely outstanding."
Some felt so strongly that they spoke at the risk of their jobs:
Former CEO Wayne Hedien, who retired last year after five years at the helm, declined to be interviewed for this story. It took a month of prodding to get CEO Choate to agree to talk. We spoke with or received documents from more than 100 current and former Allstate agents and managers for this article. Some felt so strongly that they spoke at the risk of their jobs: Choate refused to waive a rule requiring agents to get company permission before speaking with the press. Those who violate the rule can be terminated, regardless of how much money they've personally invested in the business.
"crooks and cowards."
In recent years more than 1,600 agents have formed a national "club"--not a labor union, they insist, a club--that Allstate quietly monitors but refuses to communicate with. Some of its leaders have been harassed, even terminated for dubious reasons (such as misfiling a handful of insurance applications). At a recent convention in Atlanta, not one member of the group--the National Neighborhood Office Agents Club (NNOAC)--was willing to be quoted in FORTUNE. One of the club's most eloquent leaders, Richard Larkin, a successful 33-year Allstate veter an, edits a newsletter that calls for the ouster of senior executives, whom he considers "crooks and cowards." He says he arrived at his home in Virginia one day last March to find his .22-caliber handgun, which he hadn't used for more than a decade, lying on his dresser. The gun's chamber had four spent cartridges. In Larkin's closet, a row of pants had bullet holes through their backsides.
Larkin believes the shooting incident is related to his activities on behalf of the NNOAC, that somebody was trying to scare him into silence. But he has no proof, and Allstate denies any involvement. Larkin refers to the past ten years at Allstate as "a decade of deceit" and writes that "if the Good Hands people are to prevail in this struggle, then those responsible for the turmoil, the deceit and deception must depart. Those corporate executives who feel they are above the law in the pursuit of the bottom line are liabilities. They constitute a clear and present danger to all employees of the company and to the insuring public."
The NNOAC is the group to which senior executive Springer drafted the letter urging cooperation and peace. But in the letter's final draft, Choate and his colleagues watered down the language dramatically, removing all references to things like storms and wars and healing and urgency--inaccurate "hyperbole" in their view. "At that point in time, we were a newly public company," explains Allstate lawyer MacKay. "So for securities reasons, for a lot of different reasons, the choice of wording is very delicate." In the end, it didn't matter: Choate wound up deep-sixing the peace talks altogether.
Allstate's problems are historical
In a way, Allstate's problems are historical, since the company was always a bit of an odd duck in the insurance trade. As set up in 1931, it bypassed the traditional route of selling policies through agents and instead found customers through the Sears catalogue and by direct mail. Later Allstate clustered agents in Sears stores and in some freestanding locations. But unlike the independent contractors who worked for its chief rival, State Farm, Allstate agents were mostly employees whose sales expenses were picked up by the company. Those hired in the 1960s and 1970s were told they could work hard for ten years, build a book of business, and spend the rest of their careers servicing their customers. Six-figure incomes were common, causing some jealousy among managers who earned less. As long as Sears prospered, so did Allstate. But the retailing empire was faltering by the mid-Eighties, while the insurer's costs were starting to climb faster than premiums.
How could Allstate become the lowest-cost insurance provider (a proclaimed goal) and also keep pace with State Farm, whose offices of independent contractors were blanketing the country? Allstate's solution: Blanket the country with its own employees, turn them into quasi-independent contractors (or NOAs), and get them to swallow most of the overhead--rent, phones, staff. The plan would let Allstate maintain total control over its workers while they picked up more of the expenses of the business. "We are not out to create war on this," a top executive announced at a presentation to regional officials in 1984. "This is just the way we are going to run our business in the future."
war it was but war on the consumer or agent or both
But war it was, at least by the time the message filtered down several management layers. Many agents were warned that if they didn't leave their Sears booths and start behaving like entrepreneurs in freestanding offices, they could be fired or shuffled off to Siberia-like locations, or surrounded by new hires who would erode their incomes. A former Tennessee agent, Bob Sharp, says he was warned that he'd be sandwiched "next to a dumpster behind a Kroger grocery store." A former manager from Louisiana, James Ivy, claims that managers were instructed to "ride their asses" until agents agreed to take the plunge into NOA-land. Inevitably, many just weren't capable of running real businesses. Moreover, numerous agents suddenly found themselves surrounded by one another, competing for the same customers, as Allstate oversaturated their markets. "You had to sell something [the NOA program] that you knew was shaky and that wasn't in the best interests of the agents," recalls Henderson Quinn, a Seattle-based manager who spent 14 years at Allstate. "A lot of agents were lied to. A lot of managers just lied to keep their jobs. It's not a pretty story. In some ways, the company gave away half the store, then they decided to take it back in ways that were duplicitous. Basically the company got greedy."
CEO Choate has a different view: "No one forced anyone into the [NOA] program. And I'm the one who put the program out so I know how it was administered...Our overwhelming strength is our agency system. For us to do anything that isn't in the best interests of the force would be absolutely crazy."
Many say they were misled
In the world of franchises, from Baskin-Robbins to Burger King, laws clearly mandate that the risks of opening a store must be spelled out in writing. But Allstate's NOA agents, who continued to be company employees, were left to rely heavily on managers' verbal assurances. Many say they were misled into believing that most or all of their expenses would be reimbursed under a formula linked to new production. In fact, the formula often reimburses only 25% to 50% of an agent's expenses, which can easily run to $75,000 a year. Internal Allstate documents from the mid-1980s use the term "cost-sharing agent" to describe the new NOAs-a term that was not shared with agents at the time.
Once the program was announced, in 1985, Allstate went on a growth blitz. The force expanded from 13,000 to nearly 16,000 agents over the next five years; far more than 3,000 had to be hired, since thousands failed in that period. Underwriting standards were relaxed, while agents were encouraged to sell as much insurance as they could and plow their profits back into their agencies by hiring staffs. New agents were told to expect the six-figure incomes that older agents enjoyed, while the older agents were told to expect even more. At motivational rallies near Allstate's headquarters, a money machine blew fake dollar bills around the room. "The more you sell, the more you make," promised a recruitment brochure. "It's as simple as that."
Soon many agents were starting to drown
But a confidential study by the Booz Allen & Hamilton consulting firm projected that under the new system agents would be earning less after 20 years of service than if they stuck with the old system or if they worked for State Farm--and this assumed a more generous reimbursement plan than the company adopted. Soon many agents were starting to drown, even with their spouses working for free. Warned one manager in an internal document in 1987: "You are going to see agents losing homes, etc., due to borrowing money to keep the NOA office open."
Much of the business the agents were generating during those expansion years was unprofitable. Loss ratios increased, reserves dropped. Solution: Allstate slammed the brakes on growth in 1990, severely tightening underwriting rules. Agents with high-expense operations began to hemorrhage. To reinforce the message, Allstate in 1992 slashed commission rates on new insurance policies by more than half (from 20% to 8%), while commissions for renewal business doubled (to 8%). So agents who hadn't built up a substantial customer base watched their revenues plunge as their out-of-pocket costs were already soaring.
then I started talking to agents in other cities and states
While early company manuals for NOAs rang with inspirational rhetoric about how agents could set their own goals, agents maintain they can now be threatened with "job in jeopardy" status for not meeting sales quotas. Agents increasingly lack time to meet those quotas. The number of operations centers that service the agents has been slashed from 22 to three since 1990, eliminating thousands of employees. All that customer-service work--from processing payments and claims to inspecting property--has been handed to the sales agents. Workloads have soared, while incomes have suffered because agents have less time to sell. And agents who fail? Their accounts get shifted to other agents, who must service them for little extra compensation. If they slack off, it's "job in jeopardy" time.
Georgia agent Lynda deCordre was threatened with termination unless she serviced as many as 6,000 extra accounts, on top of her own 4,000. A single parent, she found herself working 17-hour days, suffering from stress disorders, and pleading vainly for help from Allstate. As an agent-employee in a Sears store, deCordre had earned as much as $175,000 per year and rose to become one of the company's top sellers of commercial insurance. By the time she "retired" as an NOA entrepreneur in 1994, she had laid off four workers, had lost two homes, and was bankrupt. "I was doing the work of six people," she recalls, "while my manager was telling me that I was the only agent in the country not succeeding in the new program. He said I was providing too much customer service. For a long time I believed him. And then I started talking to agents in other cities and states."
It's not just me.
Pat Barille of Illinois was such a model agent that Allstate featured her in a Sears annual report and in videos designed to motivate rookies. She won plenty of sales awards, plowed $250,000 into her agency, and was flat broke within three years. She sued Allstate in November, charging fraud and seeking to recover her money. "It was a nightmare," she says. "An executive at headquarters told me I just happened to get in at the wrong time, and there was nothing the company could do for me. There are thousands of agents that this happened to. It's not just me."
Allstate says agents under such pressures should invest further in their businesses and hire more staff. The company is beginning to talk again about growing aggressively in some 70% of its markets. But many agents are reluctant to spend, ever fearful that Allstate could decide anytime to slam the brakes on growth or lower commission rates or raise premiums, which are already often higher than State Farm's.
I'm just a fool.
The bottom-line question for NOAs: Why should agents invest their own money in a business where they assume the risks but cannot own anything? "I've dropped a half million dollars in the last ten years," says a veteran agent from Virginia. "Three years ago management decided to cut our ability to buy Yellow Pages advertising, and my business fell so badly I had to fire most of my employees. I'm not spending any more of my own money. I will not, I will not, I will not! Why should I? I'm just a fool. I don't own the book of business."
Allstate has developed a new concept--the neighborhood exclusive agent (NEA)--which requires employees to pay 100% of their expenses in return for higher commissions and the opportunity to own their customer accounts after five years. Most agents aren't buying: For one thing, NEAs can be terminated at any time without cause, and any part of their contract can be changed. Only 10% of agents are NEAs, but it's clearly the wave of the future since new hires are given no choice.
Myles Barchas of Dallas is one agent who liked the sound of the NEA deal. Intensely driven, he was hired as an NOA in 1988, built a staff of five, and plowed most of his income back into the business. He willingly became an NEA in 1992 but soon concluded Allstate wasn't living up to its end of the bargain. A private letter ruling from the IRS states that, for Allstate to obtain certain tax breaks, NEAs must be free to run their agencies with "no direction" from Allstate. Yet Barchas was still being required to attend meetings, meet sales quotas, and submit his staff to sales training sessions. He began to complain.
.....The article continues on the next page.
Help others to make an informed decision
.....If you are interested in sharing your claims experience with others take the time to add your story concerning an insurance company, adjuster or contractor to our Speakers' Corner or Consumer Survey. In the past this individual experience has been unavailable with a few exceptions, other than as part of a statistic on consumer satisfaction. Become more than a statistic by sharing your experience with others.
Welcome Companies Consumer Information Consumer Survey
Claim Experiences Press Releases Speakers' Corner Related Links Home
Commercial Union ( CGNU Group ) Consumers'
Forum
c/o B.Shuttleworth
P.O.Box 235
Postal Station E
772 Dovercourt Rd.
Toronto, Ontario
Canada, M6H 2V0
brefni@cuconsumers.org
copyright © 1997-1999 by Brefni Shuttleworth