Using a cell phone while driving is not the only distraction leading to automobile crashes today, says a group of insurance carriers.

Allstate Agents Hope Unionization Sparks Changes at Insurer

By Andrew G. Simpson | July 26, 2011

Some unhappy Allstate Insurance agents who say the insurer controls them like employees even though they are independent contractors are moving to affiliate with a union.

The National Association of Professional Allstate Agents (NAPAA) claims that the giant insurer is manipulating independent contractor rules, terminating long-time agents, cutting agency compensation, and driving down agent morale.

Mississippi-based NAPAA, which claims to have about 1,200 members or about 10 percent of Allstate’s nationwide agency force, has scheduled a membership vote over the coming weeks, with results expected to be known Aug. 17. The vote will be on whether to form a guild, which would then affiliate with the Office and Professional Employees International Union (OPEIU), which has 125,000 members and is itself tied to the AFL-CIO.

Allstate does not appear concerned about the move, pointing out that the group represents only a fraction of its agency force across the country. The company says courts and the IRS have recognized the independent contractor status of its agents. It also disputes the claims of a high number of terminations and low morale, maintaining “growth opportunities have never been better” for its exclusive agents.

Forming a guild of self-employed workers would give NAPAA members more legislative access and lobbying resources to advance their interests but it would not give them any collective bargaining leverage with the insurer, according to Nicole Korkolis, communications director for OPEIU.

Jim Fish, NAPAA executive director, acknowledges that even as guild members the agents will still lack bargaining clout but says they hope Allstate will take the group more seriously as a guild.

“I mean, currently, as a group, we can’t bargain with them and they don’t recognize us as an entity at all, actually. They think we’re a bunch of disgruntled agents. I guess, and you know, in a way that’s probably true because we’re not happy with the status quo,” Fish told Insurance Journal.

He said that by gaining access to the AFL-CIO’s lobbying resources, the agents might be able to earn more respect. “We don’t have the lobbyists to go in there and support a bill; well, they do,” Fish said.

Fish sees the vote as a referendum on company management.

“Agent morale at Allstate has hit rock bottom, which cannot be good for the company, the agents or the shareholders. This is not a matter of political philosophy; it’s a matter of defending the interests of ill-treated small business owners,” he said in announcing the vote.

He said the vote would be “proof positive that agents are extremely unhappy with the status quo at Allstate.”

Allstate, however, dismisses the significance of the vote.

“This group’s indication that it will seek a vote from its members to affiliate with the OPEIU would seem to be an internal issue for them. Their members include only a small fraction of Allstate’s current agency owners,” said company spokesperson Meghann Dowd.

Fish said the move comes after years of complaints by NAPAA members about how they have been treated by the company under CEO Tom Wilson. Some of its members claim they are facing a 20 percent cut in their compensation. Others have joined his group because Allstate has threatened to terminate them for failure to meet production requirements.

“We’re seeing a lot of agent terminations for not meeting what the company calls ‘expected results,’ which are quotas, basically, production quotas. Of course, as independent contractors, you’re not supposed to have production quotas,” he said.

Fish said the company is terminating or forcing the sale of agencies on a “regular basis” as part of a plan to get more agencies with $3 million to $4 million in business.

“Well, that’s pretty hard to do for some of these guys who are sitting out there with a million dollar book and trying to grow that to $3 or $4 million. You can’t do it overnight. You can’t do it in three years. You can’t do it a lot of times in five years unless you spend a lot of money advertising and these agents don’t have those kinds of resources to build their books. Technically, it’s not that they don’t want to, it’s just that some of them don’t have the financial capacity to do it,” said Fish.

Several long-time Allstate agents are suing the insurer.

Paul Mattus, of Camp Hill, Pennsylvania, began selling Allstate insurance in 1983 from booths at Sears. He continued with the company when all of its agents moved into offices. Then he agreed to become an independent contractor and invested money in his agency. In April, Mattus sued the company, alleging that Allstate engaged in an unlawful hostile takeover of his business and his clients. He said Allstate gave him until May 1 to either sell his business or receive less than 10 per cent of the value of the business as a termination payment.

New Jersey Allstate agent Mario DeLuca is in a similar situation. DeLuca filed suit against Allstate New Jersey Insurance Co. in the Superior Court of New Jersey alleging the company has violated the state’s franchising law. DeLuca maintains that his agreement with Allstate constitutes a franchise relationship under New Jersey law.

“DeLuca’s case is only the tip of the iceberg,” said Fish. He said several other long-term agents in New Jersey have received warning or termination letters as well.

Jacqueline Jackson-DeGarcia, attorney for Mattus, said her client is not alone and that there is potential for a class action lawsuit on behalf of the wronged agents.

Allstate denies it is terminating a lot of agencies but it does acknowledge that having more $3 million to $4 million-size agencies is one of its goals.

“We know that agencies of a certain size are better able to provide the superior customer experience our customers tell us they need. We’ve seen that agency locations in the range of $3 million to $4 million in premiums have the scale to support the staff and other resources needed to provide superior levels of customer service,” said Dowd.

She said the company has set long-term growth and performance goals to “put more agencies on a trajectory toward this agency size” and management is working with agency owners to help them reach this model.

In addition to the terminations, these agents have complained about other conditions that they argue make them employees, not independent contractors as Allstate classifies them.

“They [Allstate] still control the hours that agents work. The office has to be open 24 hours a week, so if it’s a one man office, obviously, he has got to put 44 hours a week in. Not a terrible schedule, but it’s just mandated and it’s not supposed to be if you’re an independent contractor. They control the scripts. They give agents the scripts about how they’re supposed to sell policies,” said Fish.

Fish said Allstate also pressures agents to adopt what is called a “branded retail environment” and, in most states, it blocks them from placing accounts with other insurers.

Independent contractors are supposed to “be able to be a little entrepreneurial and run their business as they see fit, but that’s not possible with Allstate,” according to Fish.

Allstate maintains that the company is on firm ground classifying the agents as independent contractors. “Allstate agents are independent contractors who run small businesses. Many are incorporated,” said Dowd.

She said Allstate’s agents’ status as independent contractors has been reviewed and affirmed by the Internal Revenue Service, the National Labor Relations Board, the Equal Employment Opportunity Commission and several federal courts.

The company also denies it is cutting all agents’ compensation by 20 percent, but does acknowledge that it is “reviewing all components of agency owner compensation to create a model that better rewards higher performing agencies and aligns more closely with competitive industry practices.”

As for agent morale, that’s fine, too, the insurer says.

“Growth opportunities have never been better for Allstate’s exclusive agency force committed to providing superior customer service,” Dowd said.

Allstate (10.4%) still ranks second to State Farm (18%) in share of the private passenger auto insurance market share, according to A.M. Best. But in the past several years competitors including Progressive and Geico have been gaining on it, demonstrating particular success adding customers through Internet sales. Compared to some others, Allstate has been late to online distribution and just last month it agreed to pay $1 billion to acquire online sellers Esurance and Answer Financial to help it catch up on digital sales.

The company’s homeowners’ results have also been hammered by billions of dollars in losses from tornadoes and other natural catastrophes this year– as have those of other insurers.

But Fish blames the treatment of agents under the direction of CEO Wilson for part of the company’s slide.

“It is since he came on board that they’ve lost a million households; that’s a lot of households to lose. Why are they losing those households? Because maybe he’s getting rid of these agents who have 92 percent retention ratios and casting them aside,” Fish said.

At the same time Allstate is trying to shed agents, it is looking to add agents in certain parts of the country. In April, Allstate said it wanted to open nearly 50 new agency offices in Florida, with about half in north Florida. The company has about 1,000 exclusive agents in the state.

In February, the company publicized a plan to appoint 54 Colorado agency owners by the end of 2011. Allstate said its new and existing agencies in the state would also hire more than 80 licensed sales professionals through the year.

In March, Allstate launched a recruitment campaign across the West, seeking 15 exclusive agents in New Mexico, 34 in Arizona, 19 in Nevada and 20 in Utah.

This strategy also irks NAPAA.

“Isn’t that a strange phenomena? “ asked Fish. “Well, we think that what they’re doing is deliberately getting rid of their older agents to bring on younger, Twitter enabled agents that are younger. I guess they feel that they have more get up and go. Yet, the agents that they’re terminating have loss ratios in the 40s or less. They have retention ratios of 92 percent and higher. And the production the production doesn’t stink. It’s not terrible. They aren’t meeting the goals that the company wants, but you know a lot of agents can’t do that even if they’re newer agents, so we think that a lot of it is age related.”

In 2009, CEO Wilson brought in Joseph Lacher, a Travelers executive, to turn around the auto and home business. But last week, Lacher abruptly left the company — a move that concerned analysts and investors and sent Allstate’s stock tumbling.

Allstate has been silent on why Lacher left. CEO Wilson told investors last month that returns at Lacher’s unit were inadequate. There were other reports that Lacher had criticized Wilson in a private meeting with agents.

Fish said he thinks there was “some acrimony” between Lacher and Wilson. Even though Lacher was the person in charge of the auto and home insurance agent force, Fish doesn’t hold him responsible for conditions.

“We think that it’s Tom Wilson who needs to go and somebody needs to come in and really revamp the whole thing because we need someone who values the agents. Joe Lacher did,“ said Fish.

This is not the first time Allstate agents have tried to unionize. The group tried it nine years ago, in 2002, but lost its argument that the agents are not independent contractors before the NLRB. “We contended that we were employees and lost by one vote at the NLRB. And George Bush had just been elected, so he had already stacked the board with his appointees, and of course, you know he was not in favor of unions,” said Fish.

If the guild vote succeeds, the Allstate group would be the only insurance affiliation for the OPEIU, which counts pilots and podiatrists among its members. OPEIU had some Prudential employees as members up until two years ago under collective bargaining but then they became independent contractors, according to the union’s Korkolis.

Japan's Tragedy A Reminder of Need for Business Interruption Insurance

The human, social and economic devastation in Japan from the massive earthquake and tsunami is overwhelming and business losses are just beginning to be tallied.

United States companies that purchase products or supplies from Japanese companies or have operations in Japan have a bumpy road ahead of them and business interruption coverage could be critical to helping these businesses getting back on their feet.

"It's inevitable that there will be hundreds of millions of dollars of losses to American companies for sure," said Finley Harckham, senior partner for Anderson Kill & Olick, a law firm in New York.

Harckham says businesses are now trying to figure out how long the disruption will last and if they have adequate inventory to cover that time period, which should all become clear in the next couple weeks.

"The companies that are going to be affected pretty much know it now but the question will be what is the scope of the losses rather than whether there will be losses," he said.

It is too soon to know what the reaction from the insurance industry will be to this event in terms of a hardening market or a pullback of capacity for business interruption coverage, says Pam Ritz, president of Risk Specialty Agency, but insurers are going to be extra careful in the coming months.

"It will be about 30 to 60 days before everyone realizes what the overall financial impact of the earthquake is, but I do think we will see insurers being very cautious in those 30 to 60 days," she said. "There are a lot of renewals coming up in April in regards to worldwide reinsurance and they will be affected by Japan."

U.S. companies should also check their policies to make sure their business interruption coverage protects them in the event of an earthquake or other event like a tsunami.

Insurance experts agree that the biggest challenge when it comes to business interruption is educating clients on why they need the coverage.

"It is very, very difficult to have those discussions with customers and widen their perspective as to how their business can be interrupted beyond the scope of physical damage to their facility," says Ritz. "Customers still believe that everything is covered under the standard commercial package policy so communicating to customers is so important."

The catastrophe in Japan is just one more example of why this coverage is important to businesses and agents need to be able to explain this to their clients.

"We still find that it's terribly difficult educating the channel of distribution," Ritz says. "It requires knowledge on the part of carriers and agents on those products. Contingent business interruption coverage requires agents to be very eloquent and come up with financial examples and other examples so the client can see and assess their business in aspects beyond physical damage."

Terry Tadlock, president of Coastal Plains Insurance in South Carolina, agrees.

"Education is absolutely one of the biggest problems in this market," he says. "When I teach business income, I ask people what is more important, the building you are in or the money you make? Yet we still spend countless hours just talking about property."

Harckham says that in order for an insured's contingent business interruption coverage to be triggered here in the U.S., the insured would have to have coverage for earthquake or flood.

"The way it works is you have to have coverage for your own property that would have applied if the damage was suffered by your own company," he said. "U.S. companies have to have some earthquake or flood coverage to trigger this coverage."

In addition to having the earthquake or flood coverage, companies would also have to have blanket coverage.

"It gets kind of confusing because lots of American companies have flood or earthquake coverage for specific regions but don't have blanket coverage," says Harckham. "If they don't have it for all of their operations, that could be a problem."

Tadlock says another issue could be that earthquakes are excluded by most property forms, and insureds have to have bought it back to be covered. Even then it wouldn't be triggered unless the company had a specific endorsement for it.

Tadlock says that most people do not buy back the endorsement unless they feel that they are in an exposure area, and as always, you cannot buy the coverage after the fact.

"The problem with earthquake coverage is it's very inexpensive where they don't expect it to hit and in places with exposure, it's quite pricey."

Harckham says hopefully one good thing that can come out of the Japan tragedy is an increase in coverage that will protect insureds' businesses.

"It's a good wake up call for American businesses to be thinking about this coverage and focusing on it at renewal time, which they haven't done in the past," he said. "Or looking at triggers like flood, and whether they are covered domestically or overseas. Insured's need to know if they have the coverage they need."