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

Hypothetical Examples of ALI results:Strike 1 – Joe Smith Agency(first year)Total number of responses: 4016 of 40 (40%) answered all 3 questions in the positive (Loyal Customers);16 of 40 (40%) answered positive on Satisfied with agent, and negative or on renew andrefer;8 of 40 (20%) answered all three questions in the negative (At Risk Customers)The ALI score is calculated by subtracting the percentage of “At Risk” customers (20%)from the “Loyal” customers (40%). Loyalty Index score for this agency is 20, which is anunsatisfactory resultStrike 2 – Joe Smith Agency(second year)Total number of responses: 4026 of 40 (65%) answered all 3 questions in the positive (Loyal Customers);4 of 40 (10%) answered positive on Satisfied with agent, and negative or neutral on renewand refer;10 of 40 (25%) answered all three questions in the negative. (At Risk Customers)The ALI score is calculated by subtracting the percentage of “At Risk” customers (25%)from the “Loyal” customers (65%). Joe Smith’s Loyalty Index score for the second year has improvedto 40, but the result is still below 60, which is unacceptable to Allstate management.Strike 3 – Joe Smith Agency(third year)Total number of responses: 10010 of 100 (10%) answered all 3 questions in the positive (Loyal Customers);85 of 100 (85%) answered 2 of the 3 questions positive, and 1 either neutral or negative;5 of 100 (5%) answered all three questions in the negative (At Risk Customers)The ALI score is calculated by subtracting the percentage of “At Risk” customers (5%)from the “Loyal” customers (10%). In the third year, more of Joe’s customers responded tothe survey, but 85% of their responses did not count toward the survey results. Joe’s LoyaltyIndex score for the third year was a paltry 5, well below the company’s benchmark of60. Therefore, it only took five of Joe’s customers determine that he was no longer worthyto be an Allstate agent, so he’ll be terminated.Now, if you really examine the resultsof these examples, you might begin towonder what they’re smoking in Northbrookthese days. When you compare theexamples from year two and year three, itis clear that the results from year three aresuperior to the first two years. Why? Becausein year three, only 5% of Joe’s customerswere “At Risk.” Compared to yearone with 20% “At Risk” and year two with25% “At Risk,” year three is looking prettygood from our perspective. Sure, the ALIscore is lower in year three, but isn’t thewhole idea stop customer defections?So, what does the ALI scoreactually mean?Is there any evidence that ALI measurescustomer satisfaction or loyalty?Does the ALI actually have a meaningfulcorrelation to the customer’s satisfactionwith the service from the agency? Doesa higher score really indicate fewer customersare “At Risk?”The ALI assumes that the agentsomehow bears the responsibility forthe multitude of issues that could elicita positive or negative response on anyone of the survey questions. Outside factorsaffecting customer answers includerecent rate changes, re-rates due to updatedcredit scores (SRM), competitivepositioning, billing issues, quality of servicefrom the CIC, underwriting decisionsand guidelines, and claim service,to name a few.We also have to wonder if the retentionratio (the actual ratio of customerretention measured against 100% of customerpolicies) has lost its significance atAllstate? Will the miniscule fraction ofcustomers who have answered a surveycause the company to simply disregardretention ratio?Individual results were sent to agentsafter the 2008 survey, including the scoreand comparison from the 2007 survey.Agents were given their ALI scores, andthe number of customers who completedthe survey. The report does not includea breakdown of the number of Loyal, AtRisk or Other customers.There is, however, a breakdown of thepercentage for each answer by question.Following are actual agent results:Actual Agent 1: ALI score = 45 (667surveys sent, 68 responses (10.2%)“How satisfied are you with your AllstateAgency?” 77% positive;“How likely are you to renew your policy?”64% positive; and“Have you recommended your Allstateagency to others?” 79% positive.Actual Agent 2: ALI score = 51 (638surveys sent, 81 responses (12.7%)“How satisfied are you with your AllstateAgency?” 71% positive;“How likely are you to renew your policy?”60% positive; and“Have you recommended your Allstateagency to others?” 71% positive.Actual Agent 3: ALI score = 74 (667surveys sent, 93 responses (13.9%)“How satisfied are you with your AllstateAgency?” 92% positive;“How likely are you to renew your policy?”86% positive; and“Have you recommended your Allstateagency to others?” 86% positive.You’ll note that Actual Agent 1 has a34 — Exclusivefocus Summer 2009