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

fallen upon deaf ears. And suddenly afteryears of ignoring such solid advice,combined with a woeful neglect of itscustomers, the company has a full-blowncustomer defection crisis on its hands. Soinstead of listening to those who meetwith customers on a daily basis, or takinga serious, unbiased and introspectivelook at its own operations, the companyhas chosen instead to cast blame on itsfront-line workers, who have faithfullycarried out their duties. As we will see,the company’s remedy will hurt morethan it helps.It appears that Mr. Wilson has selecteda team of employees in Home Officewho were tasked with “reinventing”something that would cause a major shiftat the agency level.Reinvention #1:The Agency LoyaltyIndex (ALI)Most insurance companies have longrealized the importance of customer loyalty.At a time when there is little growthin housing and automobile markets, carriersunderstand the importance of retainingthe customers they have workedhard to acquire. New innovations inrewarding customer loyalty include discountsto the client for a combination ofmultiple policies and longevity. Retentionratios have always been a key qualityfactor at the agent level, and high levelsare rewarded.However, at Allstate, the tried andtrue measure of customer loyalty, the retentionratio, has now been reinvented.It’s hard to improve on the wheel, but thenew, purportedly better measurement forcustomer satisfaction is the ALI.Out of the blue:A customer survey was conducted in2007 and again in 2008, following whicha numeric calculation was manufacturedto assign a score to every Allstate agencybased on the answers to three simplequestions that are paraphrased below:“How satisfied are you with your AllstateAgency?”“How likely are you to renew yourpolicy?”“Have you recommended your Allstateagency to others?”The magical number to achieve is 60.An ALI score below 60 three years in arow will result in agency contract termination.Management has been instructed toincorporate the survey results from the lasttwo years into the 2008 Employee AgentEvaluation, also know as the Agency StatusReview (ASR), which is imposed on agencyowners once a year. The risk of contracttermination begins with the October 2009survey score. And since the company willinclude 2007 and 2008 survey results whenit determines the fate of its low-ALI-scoringagency owners, you can expect to seesome terminations later this year, as manyagencies already have two strikes againstthem. Those soon-to-be-affected by the“three strikes and you’re out” rule nevereven knew they were in the game and alreadythey have two strikes against themwith only a couple of months to fix theproblem.The Formula?Here is the formula contrived to calculatethe Agency Loyalty Index (ALI):ALI is the difference between the percentof “Loyal” customers and the percentof “At Risk” customers. A “Loyal”customer gives a positive response to allthree questions. An “At Risk” customerhas given a negative response to all threequestions. All other customers are categorizedas “other” and are not includedin the calculation of the ALI score.What are positive, negative andneutral responses?“How satisfied are you with your AllstateAgency?”There are 5 possible answers to choosefrom:• Positive Responses = Completelyor Very satisfied• Neutral Response = Somewhatsatisfied• Negative Responses = Not verysatisfied or Not at all satisfied“How likely are you to renew your policy?”There are 4 possible answers available:• Positive Response = Very likely• Neutral Response = Somewhatlikely• Negative Responses = Not very orNot at all likely“Have you recommended your Allstate agencyto others?”There are 4 possible answers available:• Positive Responses = Yes or No,but willing to• Negative Responses = No, wouldnot offer opinion or Recommendagainst• There are no neutral answers tothis questionWho will receive the survey?• Agents with less than 100 householdsare not included in thesurvey.• Agents with 100 to 667 households:every customer receivesthe survey.• Agents with more than 667households: survey is sent randomlyto 667 customers.Only 40 responses are required forthe survey to be considered “StatisticallySignificant.” Apparently, 40 responsesare enough for a clear objectivemeasurement of the agent’s success orfailure at providing excellent customerservice at the agency level, no matterhow large the book.Who will respond?The most likely to respond to anysurvey are customers who have recentlyhad an event that triggers their desire totell someone, such as a rate increase, apoor experience with a claim, or a policychange processed incorrectly. Then thereare those customers who receive a propertynon-renewal notice, or those SRMcustomers whose rates increase whenthe company reruns their credit everythree years. Will any of these customerscheck the box marked “Completelysatisfied?” Not likely. Survey responserates can definitely be a big problem.When response rates are low, there isa good possibility that the people whoresponded are very different from thepeople who didn’t.Summer 2009 Exclusivefocus — 33