Agents who accepted new "independent contractor" status as
well as those who didn't are suing the insurer
By Phil Zinkewicz
"The Allstate agents just didn't have a choice ... If you've spent years of blood, sweat and money on building a business relationship with one company, you don't want to throw that all away."
--Ron Mathison, Director of Agent Affairs, National Association of Professional Allstate Agents
Back in the late '60s and early '70s, a war was waging between direct writing, captive agent companies and independent agent insurance companies. Slowly, but surely, the direct writers and captive agent companies were capturing personal lines books of business from independent agency companies, until by the early '80s they had the lion's share. The lines were clearly drawn. Direct writers and captive agent companies boasted that they could provide the same personal lines products to consumers at less cost. Independent agent companies countered that their distribution force was able to provide the personalized, value-added service that customers wanted.
However, the lines of demarcation are not so clear today. Over the past two decades, the adversaries have appeared to cross boundary lines. Direct writers have taken on independent agents as part of their distribution system and agency companies have experimented with the direct approach.
One of the most successful of the direct writing, captive agent companies is, of course, Allstate. The insurer was one of the first to cross boundary lines, employing the services of independent agents in small rural areas, primarily. But about three years ago, Allstate went a step further. The company decided that, for cost-cutting reasons, it would, in effect, force its captive agency force to become independent contractors. The story is an interesting one.
Today, Allstate Insurance Co. has found itself in a precarious position, not because of any financial difficulties or because of criticism from regulators or consumer activists, but rather because a huge portion of its own distribution system is up in arms against the insurer. It was just three years ago that, as part of its $600 million cost-cutting program, Allstate decided to offer its captive agent work force the "option" of either becoming independent contractors or not, and "option" is the operative word here. Those who chose to go the independent route were promised certain incentives to offset the loss of the benefits they enjoyed with the company and the loss of future pension contributions. Those who chose not to become independent contractors were to be "released," the very word that Allstate used in a canned comment distributed to insurance trade publications.
As a result of Allstate's decision to start "preparing for the future" (which was the phrase the company used to describe its cost-cutting program), the insurer now faces pending lawsuits. They come from both fronts--those who face dismissal because they didn't join the plan and those who did join and who now don't like what has happened since then.
Those who left
Let's first examine the fate of those who didn't join the program. In late 1999, Allstate announced to its agency forces that it was restructuring its distribution system by "terminating" agents and allowing them to continue producing for the company as independent contractors. Those who did go independent had to sign a waiver saying that they would not sue the company. By June 2000, all but 6,400 agents had become independent contractors. The remaining agents, most of whom were older than 40, were dismissed. They could either become independent contractors or leave the company. Those agents went to the Equal Employment Opportunity Commission (EEOC), claiming that they were being discriminated against because of age. After some 15 months of trying to settle these accusations, the EEOC became frustrated and decided to file suit against Allstate in United States District Court in Philadelphia. Prior to filing the lawsuit, the EEOC had tried to pressure Allstate to compensate the 6,400 agents and change its policies, but its efforts failed.
But--that's only one lawsuit. In August 2001, Allstate agents, not wanting to wait for the EEOC to resolve the controversy, filed their own lawsuit in Philadelphia, alleging age discrimination and illegal denial of benefits. Efforts are underway to have the two suits combined so that government officials and the agents' private lawyers can work together against the insurer.
When asked to comment on these developments, Allstate would say only that: "Allstate is very disappointed to learn that the EEOC has filed a lawsuit. Allstate had hoped to reach a resolution without litigation. Allstate stands by its commitment to fairness to all individuals and believes that the release will be found to be a fair and lawful component of the reorganization program. Releases are used routinely in the American workplace in connection with business reorganizations and have been consistently upheld in court."
Those who stayed
Now, for those who did choose to become independent contractors. The National Association of Professional Allstate Agents (NAPAA) last year filed a federal lawsuit against Allstate, alleging breach of contract with its independent contract agents. NAPAA filed the lawsuit in the United States District Court, Middle District of Florida, Tampa division.
Ron Mathison, a former Allstate agent and currently director of agent affairs for NAPAA, says that Allstate promised the agents who agreed to go independent greater financial interest in the business, more autonomy and increased flexibility, but instead created new rules, regulations and mandates. Specifically, NAPAA is saying that, contrary to their contract, Allstate has unilaterally increased production requirements, restricted sales of books of business to existing and future Allstate agents, decided to pay less than full commission on forwarded customer calls and mandated business practices that conflict with the agent's status as an independent contractor.
In an interview, we asked Mathison why the 6,000 agents decided to become independent contractors in the first place. As independents, they would forfeit their benefits and no longer be a part of an Allstate pension program. But they would not be independent in the sense that they would be able to write for other insurers. They would have exclusive agent status, similar to agents employed by State Farm, Nationwide and Farmers.
"The Allstate agents just didn't have a choice," said Mathison. "The options were either take it or leave it. If you've spent years of blood, sweat and money on building a business relationship with one company, you don't want to throw that all away. The agents had a significant investment to protect. And, then it was the way it was presented. When Allstate representatives first approached the agents, they were all smiles and promises. Verbal promises were made about assisting agents in owning their own business. Once agents were all signed up, those promises were either not kept or altered significantly."
So, what we have here is an insurance company under siege. Our efforts to have an Allstate representative comment on the NAPAA lawsuit were unsuccessful.
Mathison says that the NAPAA lawsuit probably will drag on for several years. During that time, he says, Allstate agents will continue to act professionally and produce business for the company. However, he adds, the issues will have to resolved sooner or later. Moreover, the NAPAA says that, while its lawsuit has been filed on behalf of its own membership, the association believes a victory in the courts on behalf of its members will force Allstate to make changes in favor of all agents, NAPAA members or not. *