As insurance carriers expand into financial services and provide multichannel access for customers, many agents are not going along with the new program.Both State Farm Mutual Automobile Insurance Co. and Allstate Insurance Co. were sued in November by their agent associations. The agent associations are claiming the carriers have breached their contracts with the agents by increasing agents' production quotas, reducing their commissions, coercing agencies to forward their phones to call centers, and selling insurance directly to customers over the Internet.
"The move (by State Farm) into financial services has left its agents wondering what they're supposed to do and how they're supposed to do it," says Bob O'Connor, legal counsel for the Baltimore-based National Association of State Farm Agents, which filed a lawsuit Nov. 2 against the Bloomington, Ill.-based carrier in U.S. District Court in Baltimore.
In the lawsuit, the National Association of State Farm Agents claims State Farm began taking actions about three years ago in an attempt to alter its relationship with its agents.
State Farm is requiring agents to have a business plan and an ethics program and to pay $1 per insured to use State Farm's customer response center, the lawsuit states.
The company is also requiring the agents to use the customer response center in order to advertise in the Yellow Pages using the State Farm logo, and is selling insurance over the Internet, which violates the agents' right to be free from encroachment, according to the lawsuit.
Uneasy partners
State Farm agents filed the lawsuit shortly after the company proposed a partnership program, which would require agents who are not licensed to sell noninsurance products (such as mutual funds) to affiliate with agents who are licensed.
"Those agents with whom State Farm agents are required to 'partner' are allowed to raid their businesses and take their customers," the lawsuit states.
State Farm agents are "the cornerstone of our business," says Ana Compain-Romera, a spokesperson for the company. However, she adds, "the reality of today's marketplace is such that we're going to have to serve customers in the ways they want. We're looking at both the agents' and the customers' needs (with) these partnerships."
Until now, State Farm hasn't endured the visible channel conflict that Allstate has. In August, 27 Allstate agents filed a class-action suit against the Northbrook, Ill.-based carrier in response to the company's termination of 6,400 employee agents in 1999. Allstate offered them enhanced severance packages and the option to become independent contractors (see September 2001, page 8).
Additional requirements
More recently, on Nov. 9, the National Association of Professional Allstate Agents, Canton, Mich., filed a lawsuit against Allstate in U.S. District Court in Tampa, Fla.
According to the suit, the company has increased production requirements, decided to pay a lower commission for calls fowarded to the call center, mandated practices that conflict with the agents' independent status, and restricted sales of agents' books of business.
"One of the few advantages that was supposed to come to agents after their forced conversion (to independent contractors) was the ability to sell their interest in their books of business," says Dirk Beamer, partner at Wright Penning, P. C., the agents' law firm. Since then, Allstate has added more requirements for eligible buyers, which has made it difficult, if not impossible, for agents to sell their books, he says.
"Allstate will file its response in court," says Mike Trevino, a spokesperson for the company, who declined to discuss the lawsuit in detail. However, he notes, the National Association of Professional Allstate Agents represents a minority of agents.
