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With lower interest rates eating into insurance income, Allstate is making cuts across the board. In addition to severance and employee benefits, the company is also trying to offer competitive prices. However, despite these moves, the future of Allstate's insurance business looks bleak. Read on to find out why. Then, decide how you will respond to these changes. Listed below are a few possible options.
Severance and employee benefits are the primary costs
Allstate announced on Wednesday that it will cut 3,800 jobs - about eight percent of its total workforce. The cuts will be made in sales, claims, service, and support departments, but the majority will be in human resources. The company said it is undergoing a "transformative growth plan" to improve its bottom line and reduce costs. It also said it will change the way its insurance agents earn commissions, reducing costs in those areas.
Although Allstate was already laying off some employees earlier this year, the company said the layoffs were not the result of an epidemic. Rather, the layoffs are part of the company's larger strategic plan. It is moving from a captive carrier to a direct-to-consumer model to maximize revenue while minimizing cost. Nationwide recently made the change from a captive to an independent carrier model, and Allstate is the next in the chain.
The company is shifting its compensation structure to encourage growth by eliminating fixed expenses and moving variable compensation to new business. This plan will take several years to implement. The company will first reduce expenses and then invest in marketing to attract customers. Next, it plans to redesign the property/liability products and invest in new technology to improve product management and customer experience. The plan will give customers several ways to buy Allstate's signature products.
Although Allstate was already laying off some employees earlier this year, the company said the layoffs were not the result of an epidemic. Rather, the layoffs are part of the company's larger strategic plan. It is moving from a captive carrier to a direct-to-consumer model to maximize revenue while minimizing cost. Nationwide recently made the change from a captive to an independent carrier model, and Allstate is the next in the chain.
The company is shifting its compensation structure to encourage growth by eliminating fixed expenses and moving variable compensation to new business. This plan will take several years to implement. The company will first reduce expenses and then invest in marketing to attract customers. Next, it plans to redesign the property/liability products and invest in new technology to improve product management and customer experience. The plan will give customers several ways to buy Allstate's signature products.
Lower interest rates are eating away at insurance income
As the federal government continues to lower interest rates, Allstate is cutting thousands of jobs in an effort to improve its bottom line. While this restructuring plan is part of the company's multi-year Transformative Growth Plan, lower interest rates are eating away at its insurance income. For the third quarter of 2020, Allstate expects to take a pre-tax charge of approximately $290 million. About half of that charge would be recognized in the third quarter of 2020, while the remainder would be reflected in the first half of 2021.
Allstate is trying to offer competitive prices
While Allstate isn't pursuing any regulatory action, some state regulators are concerned about the company's price optimization efforts. Some states have blocked Allstate from offering competitive prices by shutting down retention models. But Allstate executives say the company's price optimization efforts have improved customer retention. State regulators in Colorado and Utah have even shut down the company's price optimization efforts. Allstate also faces a backlash from customers over its shady practices.
The company has a Transformative Growth Plan that will take several years to implement. The first step is phasing out its Esurance unit. While it has a strong direct marketing strategy, Esurance's growth has been explosive since its acquisition. Allstate also plans to invest in new technology to improve its product management and customer experience. These efforts will help the company lower expenses and increase marketing and advertising budgets.
The algorithm used by Allstate to set prices is simple, and the result is a "suckers list" for Maryland customers. High-paying customers would see a 20 percent increase, while drivers who pay less would see a five percent increase. In addition to offering competitive prices, Allstate is also experimenting with digital tools for its customers. The "GoodHome" app collects information on nearby home claims and weather forecasts. The Allstate Premium Gauge helps consumers better understand the factors that influence their premium.
The company has a Transformative Growth Plan that will take several years to implement. The first step is phasing out its Esurance unit. While it has a strong direct marketing strategy, Esurance's growth has been explosive since its acquisition. Allstate also plans to invest in new technology to improve its product management and customer experience. These efforts will help the company lower expenses and increase marketing and advertising budgets.
The algorithm used by Allstate to set prices is simple, and the result is a "suckers list" for Maryland customers. High-paying customers would see a 20 percent increase, while drivers who pay less would see a five percent increase. In addition to offering competitive prices, Allstate is also experimenting with digital tools for its customers. The "GoodHome" app collects information on nearby home claims and weather forecasts. The Allstate Premium Gauge helps consumers better understand the factors that influence their premium.
