The Future of Personal Lines Distribution: An Update

Last year, I wrote about how the distribution of personal lines needed to evolve. It ended up being one of my post popular posts ever, largely due to a group of Allstate agents finding it and making it viral (to the extent something can go viral in insurance).

The agents weren’t too happy with me telling them to change, especially with it coming so soon after Allstate had announced its preliminary moves to adapt to a changing world which had already antagonized agents.

At a recent investment conference, Allstate gave some more detail on its continuing plans and it sounded incredibly similar to what I had recommended here! Let’s take a look.

Step One: Rationalize Fixed Costs

First, here is an excerpt of what I wrote needs to happen:

Why are there seven State Farm agents in town (population <50k)? Fourteen within ten minutes! Why does anyone have more than one left in my town? Or more than three within ten minutes?

Think of all the redundant real estate costs. The redundant marketing costs (most of these agents send me mailers at least once a year). The missed opportunity to better scale policy admin costs. There is a reason Progressive and GEICO (and USAA) are stealing market share! It’s not just lack of commissions. There is a huge overhead expense deficiency.

Note, this doesn’t necessarily mean firing agents. It means changing the way they do business. First, rather than five offices around town, they all need to move to one central location. Second, instead of having two CSRs each, maybe there are three shared CSRs total on site.

The rest of the CSRs can move to the new regional CSR facility and be assigned to all area agents rather than a specific one.

“The Future of Personal Lines Distribution” www.iansbnr.com

Now, let’s compare to what Allstate CEO Tom Wilson said recently:

I’m not sure we need as much real estate as we do, so we have 10,500 offices, I don’t know if we need 10,500 offices in future. If we can take that expense out, our agents would not have that expense. They can either put that into growth or we can use it to reduce our customers prices.

Tom Wilson, Goldman Sachs conference (emphasis added)

Score one for the home team! But wait, there’s more. I didn’t just suggest cutting costs. I offered a new role for the agent since they had to spend less time on servicing and menial administrative tasks.

Step Two: Sell More, Service Less

The other big thing agents need to change is how they spend their time. With the call centers taking over a lot of the servicing, the agent can spend more time on new business (or adding new coverages to existing clients). 

“The Future of Personal Lines Distribution” www.iansbnr.com

Hey, guess what else Allstate says they are now doing? No, really…

In the agent channel, we can be better in a variety of ways. So we — first thing, we’ve done is we’re going to take service work out of the agents offices. So they’re not spending time helping you change your address or add a car — they’re really spending time selling stuff as opposed to a low value added, oh my payments late, can you see it, check and see it. So moving to centralized services and more self-serve using digital technology helps us free of time for them, so that they can spend more time growing.

Tom Wilson, Goldman Sachs conference (emphasis added)

Yup, that’s two for two! But can I get the hat trick? I also suggested that with the time not administering the in force, agents should direct their efforts to closing leads rather than doing their own lead generation (which is done more economically at HQ).

Step Three: Always Be Closing

So if the agent isn’t servicing and isn’t generating leads and isn’t quasi-underwriting, what exactly do they do with their day??? They close leads.

The new model is advertising generates call volume which then gets routed to a local agent. That agent’s job is to convert the customer through explaining coverage needs, claims capabilities, finding the right price, etc. If the customer wants to see someone face to face, they can offer that as a differentiator vs. the directs. The point is they are now closers only.

Note, this has positive economic benefits to the agent. They can handle a lot more volume than before with fewer responsibilities. 

“The Future of Personal Lines Distribution” www.iansbnr.com

Do you even need two guesses to figure out what Allstate said their model is moving towards???

We’re working on improving the way they go to market in lowering their cost structure, so that could be lowering the cost for this and improving the effectiveness of our marketing and our lead generation, so that when you call, you got a higher probability of selling somebody something.

We’re rewarding that then with that. We did change the compensation, so they get more money now for selling new business than they did or taking care of the old business and that’s because they’re going to be doing less service work. So we don’t need to pay them to do that.

Tom Wilson, Goldman Sachs conference (emphasis added)

Ladies and Gentlemen, there it is, your first IansBNR hat trick!

(Note: there is a hockey player named Tom Wilson, but he never had a hat trick. The only video results for him all have to do with fighting.)

So will this all work? Only time will tell. Let’s be honest…we all know I wrote this to brag about Allstate copying my ideas, not because I care whether it works! 🙂

But it should work. As always, it comes down to execution and whether Allstate can convince their agent force – that is historically resistant to change – to recognize that this is in their best interest too.

I’m not sure they (or their competitors, who will inevitably read the blog and imitate Allstate!) can pull it off. Never underestimate the willingness of captive agents to dig in and make this the agents vs. the management rather than about what the customer wants or needs.

But kudos to Allstate for giving it a go. It’s a necessary step to avoid continued loss of share to GEICO and Progressive. I’m glad they found my advice helpful!

The only part of the advice Allstate hasn’t followed yet is the inevitable elimination of renewal commissions (read the original for details). It might be a few years before I write the follow up to that section, but I suspect it will come eventually.