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Summer 2010

An Official Publication of the National Association of Professional Allstate Agents, Inc.

Is Allstate Really
the Best? page 18
From Good Hands to
Boxing Gloves Two
Agent Reviews of the
Controversial Book
page 41

Allstates Hidden
Agenda page 44
The Comprehensive
Recreational Activity
Policy Allstates
Secret Weapon to
Becoming #1? page 22

State Farm
Exploits Allstate
Agent Terminations
page 14


Summer 2010

An Official Publication of the National Association of

Professional Allstate Agents, Inc.


Are We Really the Best?


Can ALI be an Agents Best Friend?


An Open Letter to Joe Richardson from a California Agent


Selling your Agency?


An Extraordinary Event


BOOK REVIEW: From Good Hands to Boxing Gloves:

The Dark Side of Insurance


Allstates Hidden Agenda


The End of Another Promising Career


Atta Boy, Tommy,

but not so fast


How Download Delivers Value


How Hurricane-proof are

Your Business Records?







Consider Advisors Who Understand the Allstate Process


Getting Your Agency on Facebook


Our Real Business is... Marketing!


3 Tips Guaranteed to Increase your Quote Volume


One Improvement in Your

Agency can Keep you Ahead
of the Rest


Objection Handling for the

Rookies and Especially
for Veterans


Ed Liddy Saves the Day


I Promise Results with

My Customer Relationship
Management (CRM)
Database Money Back



A Magazine for Allstate Agency Owners and Allstate

Personal Financial Representatives
4 Exclusivefocus


Presidents Letter
Letters to NAPAA
Membership Application
NAPAA Market Place
Index to Advertisers

Summer 2010

book review

From Good Hands to Boxing Gloves:

The Dark Side of Insurance

In this issue of Exclusivefocus magazine, we are presenting two

reviews of this controversial book about Allstate. The following
reviews were independently written by two active Allstate agents
who do not know each others identities. Both of them wish to remain anonymous.

Review Number 1
Trial attorney David Berardinellis
book, From Good Hands to Boxing Gloves,
tells about a side of the Allstate business
plan that company management would
prefer to keep secret. Starting with a
recap of an accident involving Jose and
Olivia Pincheira, Berardinelli progresses
to Allstates handling of their claim and

Summer 2010

details how his experience as their trial

lawyer leads to uncovering a business
practice that, in his words, is The dark
side of insurance.
After Berardinelli quickly relates the
facts of the Pincheiras accident, he introduces us to McKinsey and Company,
a high prole consulting rm hired by
Allstate in 1992, ostensibly to help redesign the companys core business plan
with special emphasis on claims handling. Berardinelli spends the rest of the
book describing McKinseys new claim
process, designed specically for Allstate.
McKinsey calls it Claims Core Process
Redesign, or CCPR. It has since become
Allstates standard for claims processing.
According to Berardinelli, the CCPR plan

would provide Allstate with record prots

while, at the same time, deny nancial
benets to its policyholders. Berardinelli
further likens the McKinsey philosophy,
which he says has become benchmark
for the Allstate corporate philosophy, to
Wall Streets Gordon Gekkos claim that
Greed is good.
During the rst few chapters, I initially
found myself railing against Berardinellis
supposition that Allstate was purposefully
and maliciously denying the Pincheiras
claim. After all, being a good Allstater, I
was naturally going to come to the corporations defense. Not knowing the explicit
facts of the case, and instead relying on
the summary Berardinelli presented, it
seemed highly unlikely Allstate would engage in a process which not only involved
an Allstate agents purported lies, but the
use of a then-secret formula for defrauding Allstates own clients. As impatient
as I was to quickly dismiss this book as
a sour grapes retribution for running his
client through the mill, Berardinelli patiently tells a story that, in the end, makes
a compelling case.
It was breathtaking to read about the
depth and breadth the company went
through in order to manipulate and, in
essence, invent a new way to process
claims. Previously implemented in other industries, the McKinsey Greed is
Good philosophy successfully merged
Allstates pursuit for ever-increasing
prots at any cost with the new CCPR
claims process. Berardinelli goes on to
say that when used as the new standard,
CCPR relegates insurance customers to
nuisance status and treats them as an
impediment to prots rather than the nancial focal point they deserve to be.
In Chapter nine, Berardinelli reproduces a slide from McKinseys February
16, 1994 presentation to Allstate. The

Exclusivefocus 41

slide depicts a Current Game graph

showing gradually declining payouts
of bodily injury claims over a 1250-day
period. The intent is to show that early
in a claims history; BI payouts tend to
be higher, followed by a tapering off
and a gradual step-down effect until
most claims are settled by the end of the
1250-day period. The same slide also
depicts a graph entitled New Game in
which McKinsey recommends Allstate
settle 90% of its claims in less than 180
days, or the Good Hands segment, followed by a deliberate delay of about four
more years to settle the remaining 10%.
McKinsey labels this segment Boxing
Gloves. Berardinelli estimates that by
giving customers the Boxing Glove
treatment, Allstate can rack up billions
in prots through this new delay tactic.
According to Berardinelli, this strategy
involves keeping clients away from attorneys, promising forthcoming fair
settlement offers, but not delivering,
and exploiting policyholders nancial
vulnerability by making lowball initial
settlement offers.
Berardinellis logical presentation in
From Good Hands to Boxing Gloves aligns
the Allstate philosophy with McKinsey
and Companys credo of Greed is good.
It appears that encouraging Allstates
pursuit of nancial gains at the expense
of the very customers it purports to serve
is childs play for McKinsey. Berardinelli
reminds us that lest we forget one of
the biggest nancial scams of our time,
one would do well to remember Enron.
While the Enron name is synonymous
with greed and corruption, it is McKinsey that provided them with the necessary internal mechanics required to pull
off their ascent to the top of Wall Street.
And while Enron ultimately took the big
fall, McKinsey quietly slipped out the
back door to pursue its next high-paying
From Good Hands to Boxing Gloves concisely chronicles Allstates connection to
and its use of McKinsey and Companys
Greed is good philosophy. It denes
Allstates current direction, which may
well serve to dissuade new clients from
ever coming close to Allstates Good
Hands for fear they may have to wear
boxing gloves instead.
42 Exclusivefocus

Review Number 2
I do not believe maximizing prots for
the investors is the only acceptable justication for all corporate actions. The investors
are not the only people who matter. Corporations can exist for purposes other than
simply maximizing prots. John Mackey,
Whole Foods Market CEO
The time is always right to do what is
right. ~Martin Luther King, Jr.
Sears - Satisfaction Guaranteed or
your money back. Allstate - Youre in
good hands. Reputation. Integrity. Doing the right thing. These are, or were,
the driving forces of business. Yet we as
agents, and especially long-term agents,
who have lived by these attributes for years
have seen these same virtues disappear at
Allstate. We sense it like we sense a storm
coming by the wind shifting in the trees.
Somethings amiss in our corporation.
Just who is the corporations customer? As
agents, we know who our customer is, but
who is Allstates customer?
In the must-read book From Good
Hands to Boxing Gloves: The Dark Side of
Insurance, attorney and author David J.
Berardinelli exposes what agents know
all too well: the shareholder is Allstates
customer and enhancing shareholder
return is its underlying operating principle. Mr. Berardinelli is a trial lawyer
who worked to become the rst person
to obtain the now infamous McKinsey
Documents. The book talks about how
the documents teach insurers to prot
by denying or delaying claims, and how
Allstates Good Hands treatment of its
customers has been supplanted with a
more aggressive and adversarial approach
which, metaphorically speaking, requires
the policyholder to don a pair of boxing
gloves to spar with the company in order
to reach a fair claim settlement.
As agents, we know the traditional
rules of insurance. Our customers believe
us when we tell them that their homes,
autos, property and their lives are in Good
Hands. We are the face and heartbeat of

the insurance contract to our customers.

They pay their premiums and when they
have a covered loss, they believe those
Good Hands will make them whole. Replace the home damaged by a hurricane,
tornado or re; reimburse them for medical expenses or horrible injuries from an
auto accident, especially if caused by an
uninsured motorist. The customer naturally believes that Allstate will settle their
claim fairly and promptly and will keep
the policyholders best interests at the
center of the process.
According to Berardinelli, Casualty
insurance is indemnity coverage. It doesnt
pay a set benet. It pays as much as the
policyholder needs, up to the policy limit to
restore an insured to the same nancial position after the loss that he or she was in prior
to the loss.
I dont know about you, but these days
I have a sense of dread and uncertainty
every time a customer calls to report a
claim. I never know what to expect anymore. After all, we know Allstate wants
to settle the claim as quickly as possible
for the least amount of money. My fear
is that Allstate will lowball the customer
with a take it or leave it settlement offer. And when this happens, the boxing
gloves come out and I get caught in the
middle, trying to do the right thing for my
customer. Naturally, the company usually
wins and I lose another customer.
Allstate Hires McKinsey: 1992
First, a little background on McKinsey.
They do not solicit clients. Clients have to
seek them out, just as Enron did. So why
did Allstate seek and then adopt McKinseys business model and what motives did
senior executives at Allstate have?
As you may recall, in 1992 Sears, trying to prop up its suffering retail business, decided to spin off Allstate, Coldwell Banker and Dean Witter. Sears,
of course, didnt make the ofcial announcement of its plan until 1993, but
some senior executives at Allstate seem
to have been tipped off to the then-secret
restructuring plan.
Enter Ed Liddy
In 1992, Sears CFO was Ed Liddy. Just
two years later he becomes president and
CEO of Allstate. Coincidence? While at

Summer 2010

Sears, Liddys executive compensation

was mostly in the form of Sears stock and
options, which were dependent on the
entire performance of four separate businesses. All that changed when Allstate
was spun off and became the nations
largest publicly traded personal lines insurance company. Thereafter, executive
stock options would depend solely on
Allstates ability to increase net prots
and build the value of Allstate stock.
McKinsey urged Allstate to align the interests of its employees and management
with those of the shareholder. According
to Berardinelli, Proof of McKinseys plan to
put shareholders ahead of policyholders isnt
hard to nd. Allstates 2005 Proxy Statement clearly spells out this plan: Because we
believe strongly in linking the interests of
management with those of our shareholders,
we rst instituted stock ownership goals in
1996 for executives at the vice president level
and above. Therefore, Allstate CEOs are
required to own company stock worth seven
times their annual salary. Senior management executives are required to own stock
worth four times their annual salary.
You do the math. If you owned millions
of Allstate shares whose interest would
you protect? Who would your customer
be, the policyholder or the shareholder?
At the time of his retirement on December 31, 2006 Liddy owned almost 4
million shares of Allstate worth approximately $250,000,000 at the market price
of $65.11 But wait, theres more! In all,
Liddys move to Allstate in 1994 netted a
PERSONAL FORTUNE of approximately $350 million upon retirement on December 31, 2006 - much of it due to McKinseys
business model.
For Liddy and other executives, including current president and CEO Tom
Wilson, it was, and still is, a sweet, sweet
deal indeed. For policyholders, it means
excessive premiums combined with reduced claim payments. And it continues
to mean rate increase upon rate increase
for our customers. No hard talking path
can explain away the obvious: Executive
endorsed, expertly entrenched, corporate-sponsored greed.
Mr. Berardinellis book reads like a murder mystery in which he delves into the
whodunit of Allstate and McKinsey like
Sir Arthur Conan Doyles Sherlock Hol-

Summer 2010

mes. Among chapter titles and sub-titles:

Good Hands or Boxing Gloves
An Alternative Explanation of
McKinsey and the Greed is Good
McKinseys Solution to the Allstate
Changing Employee Behavior
We get What we Measure
Litigation as a tool
Redening the Game
Eye-opening for agents will not be
what Allstates culture is, as we experience this out of control beast on a daily
basis. What will be eye-opening is the
smoking gun itself; the subpoenaed
McKinsey slides from the presentation in
which the protability to be had - by basically turning the claims process into an
adversarial, litigious prot center was
revealed. The keep em running, keep
em guessing human resource policy that
has affected agents and employees since
1994, when most agents were employees,
continues to fester as RFG for todays
so-called independent contractor Exclusive Agents. As the McKinsey report
states: We get what we measure. The new
measurement approach will be based on the
processes and activities required to achieve
the desired outcomes (increasing prots).
Does this sound a bit like Expected Results or RFG?
While the main subject of Mr. Berardinellis book deals with McKinsey and the
claims paying process changes to increase
protability at Allstate using CCPR, it
isnt a stretch at all for us to surmise that
McKinsey must have been asked for other
ways to increase protability in Allstates
distribution sector the agency system.
At the time, the vast majority of agents
were Allstate employees who began to
feel the effects of the companys costshifting plan. The costs of running an
ofce, which the corporation previously
assumed, were slowly shifted to agents
through the Neighborhood Ofce Agent
(NOA) program and then in 2000, Allstate completely shifted its costs, including pensions, employment taxes, health
insurance, etc. to its newly-converted entrepreneurial agent work force. Thus, the
greatest oxymoronic title in Allstate his-

tory: the Independent Contractor Exclusive Agency Owner!

Enter 2010. Agents are being terminated for lack of production, for AFS,
agency standards and perhaps most absurdly - for ALI. Now the Ideal Agency
Model, part of the Sales and Customer
Service Roadmap, threatens to eliminate
thousands of agents as they struggle to
grow their agencies to meet this new
$4 million per agency corporate standard. Indeed, the future looks bleak for
the agency force. Yes, some will make it,
but most will fail for a number of reasons, including rates, MMGs and a lack
of capital. McKinsian in its goals and
objectives, the Ideal Agency Model was
described as follows by Joe Richardson in
an announcement released to the eld:
Based on agency feedback and modeling, Allstate has determined an ideal scale
that puts an agency in an optimal nancial
position while still encouraging growth and
An agencys progress toward this ideal
agency model will be measured, and tools
are being built to support agencies in their
efforts to maintain a positive trajectory towards the model.
For agencies who have already met or
exceeded the ideal model, Allstate will continue to provide extensive support to encourage
growth and sustained success.
The future for many small to medium
size agencies is clear: grow or go. Zero
While the Good Hands to Boxing
Gloves business model is being applied
to the detriment of policyholders, it is
helping to achieve the expected results
that company leaders need to enhance
their compensation levels and, of course,
increase shareholder value.
It is very clear to this writer that this
same Good Hands to Boxing Gloves
business model has, and will continue to
be, applied to the agency force.
Make no mistake. At a minimum, Allstate has a 10-year plan on just when and
where they are going. Its common knowledge that the company plans to reduce the
number of existing agents by up to 3,300
existing agents over the next few years. If
you dont plan accordingly, you may just
be knocked out of the ring whether its
your rst or your ftieth ght.

Exclusivefocus 43


Allstates Hidden Agenda


WHAT WOULD YOU do if someone

stole something from you? What would
your reaction be if someone lied to you?
What if, in the course of a business relationship, both of these things happened to you? Doubtless you would seek
to quickly end such a relationship. You
might even consider legal action if the
elements of both cost and outcome were
decidedly in your favor. But if the offenses
arent easily quantiable, or if over time,
they have grown from an annoyance to
outright unethical, when does your level
of awareness trigger a response?
Allstate has declared its agent sales
force independent. Yet in clear contradiction to an IRS Private Letter Ruling,
IRS standards and Allstates own words
of a promise of independence, Allstate
44 Exclusivefocus

agents are anything but independent.

On the IRS Website under the heading
of Behavioral Control, the IRS stipulates
an employee relationship exists when
a certain amount of control exists. The
very rst point of control listed under
the sub-heading Types of Instruction
Given is When and where to do the
work. Allstate agents know the company dictates the number of hours required
(44 hours per week) as well as the work
week schedule (Allstate denes the acceptable holiday schedule) and where the
company nds it suitable for an agent to
locate their ofces. Allstates corporate
advertising for new agents declares ones
ability to Be your own boss. If agents
have to conform to corporately-dened
ofce hours, work week schedules, and

corporately approved locations, clearly

agents are not their own boss. Issues such
as these and more comprise the lie part
of the equation.
In 1999 and 2000, Allstate promised
its then-employee agents the ability to
replace the growing equity of their employee pensions with the value of their
future book of business under the new
Independent Contractor Exclusive
Agent program. This promise, used as
an inducement for employee agents to
quickly convert to the new contract has
seldomly been delivered on. Newly-hired
agents are promised the future value of
their book as a secure retirement income
vehicle as well. As we now know, values
of agents books are shrinking, but it is
not the U.S. economy that is taking its
toll on their values.
Values for books of business have been
severely curtailed by Allstate management
through various forms of interference.
Chief among the types of interference is
the 90 day termination notice. Resulting
in the conscation of an agents book of
business at bargain basement prices, Allstate frequently employs this method of
contract termination and then parks the
departing agents book at the CIC or at
another agent location at a discounted
commission schedule. Agents are often
harassed with relentless emails or phone
calls decrying their performance and are
advised to sell even before any formal notices are delivered. Many times this ploy
is used even when no warning or termination notice is forthcoming. When Allstate gains control over an agents book
in this manner, it is the theft part of the
equation. Every Allstate agent should
realize by now that they are not independent contractors. This article is not
about the agents status as employees;
it is about Allstates motivation for misclassifying agents as independent.

Summer 2010

Greed and its Partner

A lie, in and of itself, is not necessarily damaging. White lies are told with
predictable frequency at dinner parties or
during bragging sessions after a shing
trip. Anyone can stand up in a crowded
movie theater and declare he is the best
tennis player on the planet, in spite of the
fact he is not Roger Federer. However, this
example would result in an embarrassing
moment for the individual as opposed to
creating a benecial outcome for the liar.
It is when the result of telling a lie benets
the liar at the expense of the recipient that
things begin to get more serious.
In the book, From Good Hands to Boxing
Gloves (reviewed in this issue), we learned
that Allstate customers Jose and Olivia
Pincheira were involved in a disputed
claim with Allstate beginning in 1999.
The books author, David Berardinelli,
explains that the Pincheiras agent admitted she told Mr. Pincheira that medical
payments coverage was the same as uninsured motorist except that uninsured motorist coverage paid for lost wages. Clearly
this is not the case. As the Pincheiras were
retired, they were sold on eliminating
this valuable coverage because the agent
falsely explained the coverage. Likely, the
agents intent was not to harm the client,
and had Allstate admitted the error, the
resulting lawsuit and public disclosure of
Allstates connection with McKinsey and
Company may have never seen the light
of day. But according to Berardinelli,
Allstates choice to defend the lie rather
than resolve the dispute is totally founded
in a level of greed that is so profound, it
is breathtaking.
Nearly eight years earlier, Allstate had
already entered into an agreement with
McKinsey and Company, an international
business consulting company. McKinsey
was hired to perform a top to bottom
redesign of Allstates business operations.
McKinsey was to concentrate initially on
the claims portion of Allstates operations.
As related in the book, it was McKinseys
Claims Core Process Redesign or CCPR
that the company used to derail the Pincheiras claim. It was also clearly Allstates
choice to implement the CCPR mandates
or not. For Allstate, it became the pursuit of prot over contractual obligation.
Greed over compassion.

Summer 2010

Greed does not exist without a plan.

You might say they are partners. Most
of us understand it is not a bad thing to
want more of something. After all, who
wouldnt want more dessert, or more love
or more money? It becomes a different issue, however, when our desire for
something is conjoined with a plan that,
when implemented, harms someone else.
If Im greedy and I want more dessert, I

Enron is
not McKinseys
only controversial
McKinsey has
been associated
with a lawsuit
related to Hurricane
Katrina, Swissairs
bankruptcy, the
British railway
nancial collapse,
Allstates claims
and more.
might plan a way to distract you so I can
take the last piece of birthday cake. All in
good fun, of course. But when greed involves money, the potential for schemes
or plans would seem to be limitless. As
we will see, some plans end with a different than expected outcome.

Why McKinsey?
It would shock most of us if it was
reported that the CEO of a prominent
corporation called a press conference and
publically declared, I think Im going to

be greedy today! Rather, we hope he declares a hopeful future for his company
that is consistent with sound business
ethics and mindful of his duciary responsibilities toward company employees, shareholders and the general public.
But when the CEO has a plan that enriches him at the expense of others, an
ethical line has been crossed that ought
to land him in jail. Any plan a CEO undertakes that breaches the ultimate duciary responsibility of putting employees
and shareholders rst is a defacto lie.
And therefore, for greed to exist there
must also be a lie at some level.
Most of us remember the Enron scandal. At the time it represented the premier
example of corporate greed. To then-Enron CEO Jeff Skilling, the potential for
immense wealth was so overpowering
that the lies he was willing to tell were
practically boundless. In the end, greed
blinded him so much that he was even
willing to risk an insider stock trade
for 500,000 Enron shares worth $15.5
million. It is doubtful Skilling set out to
defraud Enron at the beginning of his
tenure with the company. Rather, it was
his Harvard MBA, combined with his
training at McKinsey as one of their top
executives that offered him the insight to
recognize the opportunity. Said another
way; knowledge, plus greed, plus the lie
equaled the potential for untold wealth.
In all, the Enron collapse represented the
loss of more than $60 billion in market
value, $2.1 billion in retirement savings
and 5,600 jobs. Skilling wasnt willing to
think about the consequences of his actions, he only saw the cash.
If the old adage of the apple not falling far from the apple tree is true of
people, it likely has a similar adage for
corporations. In 1979, fresh from getting
his MBA from Harvard, Skilling was
recruited by McKinsey and Company.
There he enjoyed a kinship-like bond
and a plethora of business skills unrivaled in his industry. By 1987, he was a
top executive for McKinsey and proved
his considerable talents while working as
a consultant to Enron. In 1990 he was
recruited by Enrons Ken Lay to be CEO
of Enron Finance Company. In 2001,
Skilling became CEO of Enron Corporation. A scant few months later, Skill-

Exclusivefocus 45

ing would resign, followed by the now

famous investigation.
Enron is not McKinseys only controversial connection. McKinsey has been
associated with a lawsuit related to Hurricane Katrina, Swissairs bankruptcy,
the British railway nancial collapse,
Allstates claims practices, and more.
Several books have been written detailing Mckinseys controversial activities
including From Good Hands to Boxing
Gloves. So the question then becomes,
are there just a few bad apples or is the
apple tree producing the bad fruit?
When Allstate hired McKinsey and
Company in 1992 to help redesign
(plan) its business processes, it is likely
they had a specic set of problems in
need of addressing. After suffering more
than $2.5 billion in losses from Hurricane Andrew, anticipating going public
in the largest initial public offering ever
in the United States, and dealing with
IRS scrutiny over its captive agents ling Schedule C, Allstate likely could use
the expertise they felt McKinsey had to
offer. But just as likely was the fact that
Allstate viewed McKinseys expertise in
dramatically increasing executive compensation as a most coveted benet.
Unlike a marriage or even a dating situation, opposites do not attract in the business world. A partnership of like-minded
entities run by like-minded individuals is
essential if success is to be attained. Likely, the millions of dollars Allstate paid to
46 Exclusivefocus

McKinsey didnt hurt either, but there

also had to be more. McKinseys Harvard business school mentality, combined
with its considerable connections, represents the core of its philosophy and was
aptly summed up in a January 17, 2002
Wall Street Journal article that said, For
decades, McKinsey has been revered - even
feared - for its inuence in boardrooms and
its extensive and powerful old-boy network
among major corporations. Its alumni list
reads like a whos who of the Fortune 500,
including the likes of IBM Corp. Chief Executive Lou Gerstner. In recent years, that
network has helped privately held McKinsey
win lucrative consulting contracts from companies run by its former partners.
Allstate knows a thing or two about
old-boy networking as Former Sears
CEO Ed Brennan, and Ed Liddy can
attest. And lest we forget, Tom Wilson
served as Sears Vice President of Strategy and Analysis. All of these men eventually found their way to very powerful
positions at Allstate.

Dear Shareholders:
What is yours, is mine
If corporate prots are the primary focus of a CEO, can greed be far behind?
What differentiates a successful CEO
from one that is going the way of Enrons
Jeff Skilling? Shareholders would argue
that the former enriches the value of a
company and takes care of his employees. The latter enriches himself and takes

advantage of his employees.

McKinsey and Company was hired
during Jerry Choates tenure with Allstate. It is assumed Jerry Choate, then
President of Allstates Personal Property unit, at least had a hand in hiring
McKinsey and Company. Choate later
became CEO. His successor, Ed Liddy,
then retained McKinsey and continued
implementing their plan with equal enthusiasm. In From Good Hands to Boxing
Gloves, Berardinelli writes, We do know
that Choate and Liddy immediately implemented McKinseys recommendation to
create executive compensation plans at Allstate based on a strong belief in linking the
interests of management with those of our
shareholders. Together, Choate and Liddy
used the Sears IPO and their adoption of
McKinseys business plan, to create lotterysized personal fortunes for themselves.
Choate had accumulated stock and
options worth an estimated $63 million
and retired in 1998, receiving an estimated $10 million more. Liddy retired
in 2006 with 3,823,255 shares of Allstate
worth $250 million, plus an additional
$71 million in retirement package benets. Not bad parting gifts for two graduates of the McKinsey business plan for
Allstate CEOs.
Apparently, Tom Wilson is just getting
ramped up with his wealth accumulation
plan because his total compensation for
2008 was $9.51 million and $10.4 million in 2009. And even though the stock
has tanked recently, his 2010 compensation looks to be going up. All this is occurring as Wilson lays off or res thousands of employees and agents, and while
giving up market share to GEICO, State
Farm and Progressive.

Dear Agents: What is

yours, never really was yours.
Therefore, it was always mine
But Allstate and Wilson couldnt earn
a dime if it werent for the blood, sweat
and cash that Allstate agents have invested into their agencies. The way the
company goes through agents, it would
seem more correct to classify them as
useful idiots instead of the key component they are. And much like the lazy
child is maligned for sloppy schoolwork;
the Allstate agent is derided for failing

Summer 2010

to meet corporately-imposed quotas. In

spite of this, Allstate agents are pit bulls
when it comes to making their agencies
successful. They are highly talented professionals who run agencies that provide
Allstate and themselves a decent income
stream. The agents overarching motivation is to succeed as a business and provide a decent income for their families.
But in addition to the annual prot
they take from their agencies, every agent
also expects a nal return on their investment (when they retire) in the form of
the sale of their book of business. It is safe
to assume that every EA has been told
by management, at one time or another,
that they own their book of business. Of
course, what theyre referring to is that
nebulous, albeit ingenious, creation the
company has dubbed economic interest. This clever terminology was doubtless meant to fool agents into thinking
they actually own something. The company took the independent agent model,
where agents own their books lock stock
and barrel, and morphed it into a lookalike with little substance. Of course, it is
Allstates intent to imply that agents have
control (ownership) over the disposition
of the accumulated value of their books
of business, but ultimately, it is Allstate
that holds all the cards.
Its also crystal clear that Allstate,
along with some other captive carriers,
rejects the notion that its independent
contractor agents own their client lists,
customers or books of business. This, of
course, is not true in the independent
agent world, where agents are also independent contractors and, without question, own it all.
As if to emphasize the point, Allstate
CEO, Tom Wilson, made an interesting
declaration during the companys 4th
Quarter 2009 Earnings Call. Vinay Misquith from Credit Suisse asked Wilson
the following: So on stores policy, does Allstate own those policies for which the agents
are leaving and therefore you run the risk in
the short term you might have lower policy
in force count? Wilson responded, Vinay,
I would start with the concept that nobody
owns the customer. The customer owns
themselves and their own relationship.
What Wilson really said in two short
sentences is that Allstate agents do not

Summer 2010

now, nor will they ever, own their books of

business. He goes on to try to qualify his
misstep, but if we are to take Wilson at his
word, then everything Allstate has ever
promised an agent in this regard is untrue
Now Wilson might argue that his metaphor of the customer owning himself is

It is difcult
to say when
Allstates plan will
fail. This is because
so much is riding on
the outcome of what
Allstate started with
McKinsey. Millions,
if not billions, of
dollars are at stake
for Allstate
really just a way describing how careful
we must be in assuming a client will be
loyal to our company. But the context
in which the question was asked and
answered left no doubt that in Allstate
managements eye, a departing agent
does not own his client list. And this is a
key moment, if ever there was one, in our
ability to understand how Allstate views
its relationship with the agent. Because if
Allstate proceeds on the assumption that
agents have minimal or no real rights to
the economic interest in their books of
business, then its right to conscate the
agents books is a forgone conclusion.

How do they do it?

Like an audience member mesmerized by a magician on a stage, agents are
lulled into participating in a business
plan developed and implemented by Allstate. While RFG, quotas, ofce hours,

annual reviews, and more are the magicians lovely assistants that distract the
agents, it is the carefully crafted, hidden
elements of the trick that make everything possible.
Here are the elements Allstate doesnt
want the agent to see:
Establish a complex set of everchanging guidelines which are geared for
only partial success, constantly forcing
agent turnover.
Manage agent turnover rate so that
the constant outow of agents provides
the company with a specied premium
base that has no commission expense
against it.
Require a constant infusion of newlyhired agents that are channeled to sell life
and annuity products as a requirement to
keep their jobs, thereby providing Allstate
with ever-increasing sales contributions
to its nancial services goals.
Deny approval of qualied buyers.
Deny or limit purchase of books by
Allstate agents.
Require sales management compensation to be directly related to the agents
RFG bonus structure. If agents achieve
certain bonus levels, managers will be
compensated accordingly. When agents
fail to qualify for bonuses, a managers
will be affected bonus as well.
Urge agents to invest substantial
amounts of money so that they cannot
easily walk away from their agencies.
Require senior management to be
nancially committed by making them
purchase a percentage of their salary
in Allstate stock. From Allstates 2005
Proxy statement:
Stock ownership requirement
Because we believe strongly in linking the
interests of management with those of our
shareholders, we rst instituted stock ownership goals in 1996 for executives at the
vice president level and above. These goals
were increased in 2004 to require these executives to own, within ve years of the date
the executive position is assumed, common
stock worth a multiple of base salary:
Chief Executive Ofcer 7 times salary
Senior Management Executives 4 times
Other Executives 2 times salary

Exclusivefocus 47

Existing executives were given three years

to reach the new levels of ownership.
This requirement alone demonstrates
that there will be no tolerance for poor
performance from agents who might
jeopardize managements personal fortunes. Further, Allstate never intended
to give up any of the controls it exerted
over its employee agents once they were
forcibly converted to independent contractor status in the year 2000. On the
contrary, once the agents were converted,
it was much easier to re them for little
or no reason, giving the company more
incentive to tighten, rather than relax, its
vice-like grip over the agents.
Today, any semblance of independence allowed with its current agent
distribution program is merely window
dressing. Berardinelli put it most succinctly when he stated, Whose interests
do you think Mr. Wilson and other senior
Allstate executives subject to such a stock
ownership plan are more likely to be interested in protecting? The answer is clearly
not the agents.
As entrepreneurs, agents deal with

the known factors of running their businesses, such as competition, changing

expenses, market conditions, etc. They
are adept at adjusting for the unexpected,
and make decisions based on sound business ethics. But these are overt elements
of running a business that are easily discernable. When a business relationship is
tainted by one sides hidden agenda, the
relationship is doomed to fail. It is difcult to say when Allstates plan will fail.
This is because so much is riding on the
outcome of what Allstate started with
Millions, if not billions, of dollars
are at stake for Allstate management.
CEOs Liddy and Choate knew how to
play the game and amassed staggering
fortunes, some would say on the backs
of Allstate customers. Tom Wilson
looks to better his predecessors performances by combining their efforts with
his vision of the new Allstate agency of
the future. It is unfortunate that until
now, not a single agent perceived the
possibility that, not only is there a hidden agenda, but that they are unwitting
and unwilling participants.

This issue is not just about McKinsey

and its vision for Allstate. The fact of
the matter is that Allstate has a choice
in the direction it chooses to move the
company. It has purposefully cost-shifted multiple programs to the agency force
and has implemented a carefully crafted
employee agent program which is multifaceted and complex.
Because a tenured agent sales force is
not intended to be a permanent component of Allstates vision, the company
refuses to open a dialogue with any representative voice, including NAPAA.
But all of this is a conscious choice that
Allstate has made. If ever there were a
test of whose best interest the company
is dedicated to protecting; all you have to
do is follow the money.
And nally, here is the epiphany moment this article is attempting to convey:
Allstate can never allow its business model
to include true independent contractors.
Once the company becomes incapable
of terminating agents at will, management loses its ability to control the fate of
their own personal fortunes, and that, my
friends, will never happen. Ef

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Summer 2010