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As the Allstate insurance company prepares to make major changes in its business, it will lay off 3,800 employees and eliminate the brand Esurance. The company will also shift to a direct sales model and eliminate commissions on renewal policy sales. In a Wall Street Journal interview, Allstate CEO Tom Wilson explained that the layoffs are "part of a broader restructuring plan" that includes 1,000 job cuts. This is good news for the consumers of Allstate insurance, but not for the company.
Allstate will cut 3,800 jobs
The company's plans to streamline its business are largely about reducing expenses. The first step was to shift compensation to incentive growth by moving variable compensation to new business segments. This move will take several years to achieve, so expense reductions will be implemented first. Next, the company will redesign its property/liability products and invest in new technologies to improve the customer experience and product management. This will give consumers more ways to purchase its signature products.
It will shift to a direct sales model
The Allstate insurance company will shift to a more direct sales model in the near future. The company is already investing $600 million into its direct sales channel, though not necessarily cutting its expenses. CEO John Culp says the company plans to put more of the money into its top line, rather than reducing expenses. Direct sales can be more cost-effective than agents, but the company must invest millions in technology and marketing.
It will reduce commissions on policy renewals
The Allstate insurance company is cutting commissions to encourage its sales force to focus on new business instead of renewing policies. Starting in 2020, the company plans to cut agents' base commissions to nine percent from ten percent, a drop of more than 30%. The company hopes that the reduction will encourage agents to focus on new customers and make the company's rates competitive. The change will likely hit agents' profits.
It will eliminate Esurance as a brand
Allstate insurance company is planning to get rid of its Esurance brand, which it has been using since 2008. According to a news release, the decision to phase out the brand was part of Allstate's "Transformative Growth Plan," which includes increasing customer engagement, cutting costs, and improving its overall offerings. Executives say the move will free up money for marketing and agents. But what exactly does it mean for customers?
It will charge $290 million in pre-tax costs
The restructuring plan announced by Allstate Corp. is expected to reduce its third-quarter net income, especially in light of low interest rates. Allstate is estimating that it will incur a pre-tax charge of about $290 million, part of which would be recognized in the third quarter of 2020. Of this total, about $50 million would be recognized in the fourth quarter, and the remaining charge would be recognized in the first half of 2021.
