Customer Loyalty Survey (ALI)
News from NAPAA
March 24, 2009, DirectExpress, NAPAA Headquarters
Customer Loyalty Survey
Shortly after Allstate published the 2008 fourth quarter and year-end results, we began to see the media reporting statements made by their spokesperson, and by Tom Wilson, regarding customer loyalty. Following the company's conference call to discuss the company's fourth-quarter financial results, a Chicago Tribune article published on January 30, 2009, included these statements:
"The Northbrook-based company said that it is 'disappointed' by efforts in 2008 to improve customer loyalty and disclosed that it has started to tie part of the company's 401(k) contributions to how effectively employees retain policyholders.
'Acquiring and retaining customers is vital to our success,' Allstate Chief Executive Tom Wilson said during the conference call. 'I'm disappointed by the lack of significant improvement in 2008 on customer loyalty, and we're highly focused on improving that result in 2009.'
Later in the call, Wilson explained that Allstate's 401(k) savings plan 'is part incentive and part retirement' for Allstate workers. Employees and agency owners 'who don't treat our customers well and don't deliver customer loyalty will no longer be a part of the Allstate family,' he said."
Within days of these announcements, agents received a new report explaining the Agency Loyalty Index (ALI). A customer survey was conducted in 2007 and 2008, and every Allstate agency had been given a numeric score calculated by the answers to three simple questions which are paraphrased below:
"How satisfied are you with your Allstate Agency?"
"How likely are you to renew your policy?"
"Have you recommended your Allstate agency to others?"
Then, on March 19, 2009, each of the 14 Allstate Regional Vice Presidents across the country signed their name to a form letter announcing the Agency Loyalty Index will now be the means by which the company will be able to grow.
"In customer-facing areas of the company, we will be tracking results and managing employee performance down to the individual level."
"Minimum acceptable Agency Standards will be set around your Agency Loyalty Index score..We will be addressing and working with agency owners who consistently fall short of meeting established service standards, with the understanding that it will be unacceptable if improvements are not made."
Agents in several regions immediately began to receive threatening phone calls from Allstate managers. An ALI score below 60 three years in a row will result in contract termination. They will be using the last two years results, so the risk of termination begins with the October 2009 survey score.
Two of the three questions, "likelihood to renew," and "recommend Allstate to others," usually have little to do with the customer's satisfaction with service received from his agent. Also, outside factors can negatively affect customer answers - rates, billing, quality of service from the CIC, underwriting, and claim service, to name a few. The agent has zero chance of improving the customer's response to questions two or three, especially if the customer is dissatisfied with anything outside of his control, such as the outside factors listed above.
The customer survey is sent randomly to 667 of your customers that have at least one auto, renters, or homeowners policy with Allstate. Allstate considers the results statistically significant if 40 of your customers respond. Furthermore, the company claims that these 40 responses are representative of your entire book of business.
Company documents make no mention of the fact that statistical significance has no relation to statistical validity. The Allstate customer survey is not a short, three question, "yes" or "no" matter. It is long, so it deters many customers from completing it. There is no incentive or reward offered to complete it. Is it possible that those most likely to complete the survey are customers with an "axe to grind" or the most dissatisfied?
Of the 6.7 million customers who received the survey in 2008, less than 18% responded. If you have 4,000 PIF, only 20% of your customers received the survey, and as long as 40 responded (1%), Allstate claims that your entire book of customer's opinion has been represented.
"Customer-Facing" areas of the company:
Take special note here that the agency force, and perhaps claims personnel will be the only employees facing the harsh, severe punishment of termination due to customer dissatisfaction. The actions of employees in Underwriting, Operations, Human Resources, Controllers, and Home Office also have an affect on the customer - yet we are left in the dark wondering what the company will use to trigger the firing of any of these employees.
And what about all the layers of sales management? Where is the accountability for the MSL, TSL, FSL, FVP, and what will trigger their termination?
Lastly, what about the corporate officers who authorize the development and implementation of programs that oftentimes adversely affect customer attitudes? How will the company punish their missteps? Our guess is that it won't. Members of this elite, inner circle rarely face termination for bad decisions. One only has to look at Tom Wilson as an example. The company lost $1.679 billion last year in part because of some reckless investment choices. But instead of making changes at the top, Mr. Wilson is ferreting out scapegoats to blame. And, once again, his prime target is the agents of Allstate. It would appear that Mr. Wilson is one CEO that does not subscribe to "the buck stops here" philosophy. Apparently, it stops with the agent.
What we thought we heard:
A few short weeks ago, the company announced that "ongoing customer research validates that 'price is the primary driver of consideration for consumers who are shopping for insurance'."
Would we not then assume that the company should be examining its dismal 4th quarter and year-end results with this in mind? Rather than trying to find a way to terminate agent contracts, why not find real ways to cut expenses and bring our rates back to a competitive position? Do we really need layers upon layers of sales managers with company cars and laptop computers? After all, independent contractors are not even supposed to be managed.
And how much did the team of Home Office employees that came up with the Agency Loyalty Index earn for coming up with this new scam? Did they ever hear of "RETENTION RATIO?" It is the actual ratio of retention measured against 100% of your policies - a much more valid measurement than the ALI.
Another Bad Idea
The ALI announcement arrived on the heels of the cancellation of Agent Award Recognition Trips. No doubt, Allstate corporate officers are already in receipt of their bonuses and stock options, earned in spite of the poor performance of the company in 2008. The Award Recognition Trips earned by agents for excellent performance in 2008 as measured by the company guidelines, has been stripped away from them under the guise of "Customer conversations that indicate they expect Allstate to act differently."
Public outcry regarding award trips first came to light during the AIG debacle after it received taxpayer money. As far as we know, Allstate has not been rescued by taxpayer money and, therefore, is not under any public scrutiny for the way it spends its money.
Secondly, Allstate customers - and the public - are not generally aware that Allstate agents earn Award Recognition Trips for performance. Using this announcement appears to simply be a stunt to gain PR.
While it is one thing to remove incentive compensation going forward, these Award Recognition Trips are part of the total compensation package earned in 2008 for performance in 2008. Canceling the trips is nearly the equivalent of withdrawing money previously deposited to the agent account. Many agents are beginning to question the legality of this action.
Agents are asking how Allstate will respond to customer conversations when awarding large bonuses to corporate executives, particularly in light of the companies' poor performance last year. Will Tom Wilson step forward and return his bonus?
Two and Two Equals What?
Terminate hundreds of agents for failing to produce the company quota for financial products, while simultaneously, Wall Street is crying for Allstate to get out of the financial products business? Cancel Award Recognition Trips for the company's highest-performing agents, but don't bother to withhold corporate executive bonuses? Create a bogus, unscientific numerical score from a deliberate sample of disgruntled customers and use that measurement for the next round of agent contract terminations?
Where can they be going with this? Seriously, what can they be thinking?