Allstate has been experiencing layoffs due to several reasons. Office closures and a change in model are among them. The company also is reducing its servicing levels to reduce costs. As a result, the company is looking to emulate GEICO and its generic service model. While all of this will mean lower prices for Allstate customers, they will also have to make do with less personalized service.
Allstate is moving away from its captive agent model
Allstate has long operated with a fair strategy in regards to its agents. However, the company has now taken a step further and is moving away from its captive agent model. As a result, agents are losing control of their business and their commission structure. The move is expected to improve customer satisfaction and Allstate’s financial standing.
The company has consolidated its agencies and is favoring the larger ones over the smaller ones. It is also making it difficult for agents to compete with the company’s direct channels for insurance. For example, direct channels offer 7% discounts on policies, making it more difficult for agents to sell the same products. In addition, the company has also reduced commission rates for agents.
The new Allstate agent model relies more on call centers and less on agents. The company is also reducing renewal commissions by 22% in an effort to motivate agents to focus on new customers. This change is expected to help Allstate’s prices compete with other auto insurance companies.
Office closures have led to layoffs
As the economy continues to be difficult, Allstate has begun to reduce its workforce. While some layoffs are due to a reorganization, most are related to a business overhaul. This includes expanding customer access, improving customer value proposition, and investing in technology. In addition, the insurance giant is also integrating its subsidiary Esurance into the Allstate brand to save money on payroll processing.
While the layoffs aren’t a result of a pandemic, the company has embraced the shift toward direct-to-customer selling. This shift has forced Allstate to slash about 7% from its current commission structure. The company aims to move toward a direct-to-consumer sales model as an alternative to its captive model, which tends to be less profitable. This trend has also forced Allstate to reduce its commission rates for agents.
The restructuring plans will result in $290 million in restructuring charges, of which the company expects to recognize $210 million to $220 million in the third quarter of 2020. The remainder will be recognized in the first half of 2021. These charges will have a negative impact on net income and adjusted net income. In addition, the company expects to incur around $80 million in real estate exit costs due to office closures.
Lower interest rates are eating away at insurance income
The Allstate Corporation is warning that lower interest rates are eating away at its insurance income. The insurance giant has made substantial investments in interest-sensitive assets and products, and is especially vulnerable to changes in interest rates. For example, if the company holds a $1000 bond at 3% interest, but the rate goes up to 5%, it will lose money. Also, the company will lose money if it tries to lock in a higher coupon rate and the market interest rate falls.
With interest rates at historically low levels, the insurer has been forced to cut back on expenses in order to stay afloat. The company is currently half way to its goal of cutting 6.0 percentage points from its adjusted expense ratio over the next five years. The company is focusing on costs, but has cut over 3,800 jobs.
Allstate is not the only company that is suffering from lower interest rates. The company has recently shut down three dozen storefronts in California and has cut back on independent agents. The company is also cutting back on the number of storefronts it uses, and is trying to limit the payment options available to customers.
Impact on captive agents
The Allstate layoffs have a number of effects on captive agents. First of all, it will impact agent commissions. The company is moving variable compensation to new businesses in an effort to improve the customer experience and increase profitability. However, this plan will take a number of years to implement. The company will need to reduce expenses before it can increase marketing efforts. Secondly, it will need to re-design its property/liability products and invest in new technology to streamline the customer experience. The end goal of the plan is to increase agent efficiency and provide multiple channels for customers to purchase Allstate’s signature products.
In addition, the new agent desktop software will allow agents to communicate with their clients via e-mail. The company is also planning to upgrade 60,000 to 70,000 desktops by the end of 2001. Those with access to the internet will also be using new Pentium machines. In addition, they will have dedicated lines to data centers, which will help them access Allstate’s online resources and other information quickly and efficiently.