Remembering Dick and Myra Larkin - National Association of ...

Read between the lines and you’ll find similaritiesto the Canadian model:Ideal Agency Model• Fewer agency locations, largergeographic coverage• $3 to $4 million premium volumein each agency• One Agency Principle (owner)• Required Staff - 1 Licensedproducer per 1000 policies (3-4 minimum)• Expected to service Web, CICand TPP accounts of terminatedagents, for a reducedservice feeCanadian Agency Model• Closed 256 agent locations,consolidated down to 103locations• Each new location to servicemore policies• One Agency Manager(Employee)• Three to five licensed producersper location• Eliminate the payment ofrenewal commissionsSecond, “Integrate Direct and AgencyCapabilities” – What is the master plan?Key facts to consider:1. 50% of Allstate customers begintheir experience with Allstate via Allstate.com2. Two-thirds of all first contacts aremade through the Web or the call center3. Twice as many first contacts aremade through Direct than through theagencies4. Every week, nearly 50,000 consumersbegin an auto quote on Allstate.com5. Every hour, nearly 200 leads (completedonline quotes where the consumerdid not bind) are delivered to agencies6. The New Quote 2 (NQ2) onlineapplication is now available in 19 states,reaching 80% of the population.7. Call centers provide “foster care”for TPP accounts until they are assignedto an agency.A new vice president joined Allstatein June of 2008. Mark Pitchford,Direct Sales and Service VP, has quietly,over the last 10 months, transformed theheretofore failed online application processinto an overnight success.Look around you. Do you know anyagents who have received a letter warningthem that their contract may be terminatedfor failure to achieve businessobjectives? Do you know any agentsthat have had their contract terminated?How many have already been terminatedacross the country? Are you exempt, freefrom that threat, or are you next?Agent terminations in 2008-2009 appearto be focused on long-term agentswhose books contain a substantial numberof policies that are not eligible for TPP. Andwith a shortage of qualified buyers, restrictivefinancing opportunities, and uncertaineconomic times, many books go unsold,leaving sellers with a fraction of what theycould have sold their books for a few yearsago. The plight of these agents, however,doesn’t seem to bother company managersas they continue to terminate long-termagents who were so instrumental in buildingAllstate into the massive powerhouse itis today. From the company’s point of viewthey are saving massive amounts of cash.Let’s say the company terminates a 40-yearagent who has a $1 million book of policiesthat are not eligible for TPP. Over thecourse of the renewal year, the companywill pocket $100,000 that would have otherwisebeen paid to the agent. Terminatingone agent, however, does not have a greatimpact on the bottom line, but by firing1,000 such agents, the company wouldstand to save $100 million. The companyhas already amassed a huge number ofpolicies on which it will never again pay a10% renewal. As the terminations continue,the unrepresented policies will likely beassigned to either the CIC, or to agencieswhich will only receive a small service fee.The company will convert full-commissionpolicies resulting from agentterminations to service accounts. It willdo the same thing with policies writtenthrough the Direct channel. Some agentswill be able to reach the $3 million premiumthreshold when the CSRP reportcombines both primary (your BOB) andassigned business, which includes theDirect and service accounts assigned toyour agency. As you read this, you mightbe thinking “That’s not a bad deal. Thecompany is going to assign some accountsto me.” Before you get too excited,let’s look at an example of how thismight work.Normally, a $3 million dollar agencywould generate $300,000 in commissionsat 10%. Now, let’s say that thecompany assigns $1 million of “assigned”policies to your $2 million agency. Withyour combined book, you now have a $3million agency. So far so good, and youjump at the chance. Then your MSLinforms you that you’ll need to beef upyour staff to meet the requirements ofthe Ideal Agency. Depending whereyou live, that means adding at least onenew staffer. Then you sit down and dothe math and you discover that youragency will only gross $235,000 in annualrenewal compensation due to thelower commissions paid on the serviceaccounts. So let’s see, you were earning$200,000 on your $2 million book andnow you’ll earn $235,000 on your new$3 million book. It is then you realizethat you’ve been bamboozled once again.First, you lament that you’ll never ownthe accounts and second, that you hadto add a staff member, give her a salaryand pay for her to attend SPU training.But then you start thinking about all thecross-selling opportunities in this newgroup of octogenarian policyholders,many of whom will likely give up drivingsoon. If you’re still not depressed,remember that your independent agentfriend earns $450,000 plus bonuses onhis $3 million book.But don’t despair… Joe Richardsonhas promised that “We’ll work closelywith agency owners to ensure they understandat an individual agency levelwhere the agency stands, how they canreach the ideal agency model, and howwe will support them in the process.”Where do you stand in this roadmap?Take one more look, is this actuallywhere you want to go?If you didn’t think the Canada Modelwas coming your way, look again. Quietly,unannounced and slightly revised.26 — Exclusivefocus Summer 2009