5 Lessons Insurers Can Take From Allstate’s Job Cuts

Leor Melamedov

The fourth-largest car insurance company, Allstate Corp., cut 3,800 jobs on Wednesday, representing 8% of its workforce. Part of this can be attributed to structural changes stemming from last December designed to boost growth. The idea was to phase out the Esurance brand and combined several of its acquisitions into a single unit.

But it’s unlikely that so many jobs would have been pruned away had it not been for the devastating economic effects of the coronavirus. Lower interest rates are also eating away at insurance income.

Increased M&A activity and reduced revenue is typical during periods of economic crisis. But cutting jobs should be a last resort, and kept to a minimum. Here, we offer some suggestions of other effective steps insurance companies can take to reduce costs:

New call-to-action

1. Close More Sales, Faster

Many of Allstate’s job cuts affected sales functions. Yet the reality remains that without sufficient insurance sales agents, it will be difficult to continue to maintain revenue growth. The good news is that today’s insurance sales agents can be easily equipped for maximum efficiency and productivity. Gone are the days when selling auto insurance meant meeting face-to-face. Today’s agents can use phone and text-message-based communications methods to reach prospects wherever they are, using channels that are convenient for them. This means that a single agent can sell to far more customers than ever before.

2. Streamline Claims

Claims teams were also heavily impacted by Allstate’s job cuts. Part of this was due to the reality that lockdowns mean fewer cars on the road, which means fewer accidents and fewer auto claims payouts. But there are many ways for auto insurance companies to improve the cost-effectiveness of the claims cycle.

One way is by reducing the likelihood of customer churn due to a poor claims experience. The average car owner files a claim just once every 17.9 years. That means the stakes are very high for insurance companies to prove themselves. A First Notice of Loss (FNOL) process that requires customers to go through multiple channels (e.g., email, scanner, phone, fax), or fails to update customers as to the status of their claim, or makes it difficult to send supporting information at a later time will increase the probability of the customer churning. On the other hand, nailing the claims journey with excellent CX and streamlined, transparent processes will buy the insurance company another 17.9 years of loyalty.

Another way to improve the cost-effectiveness of the claims cycle is by cutting out the unnecessary paperwork overhead. Providers lose time and money due to not-in-good-order (NIGO) documents, chasing customers for documents, and working with fax machines, printers, and other outdated tools.

3. Invest in Customer-Facing Technology

As mentioned in the previous point, reducing or eliminating physical paperwork can significantly reduce bloated costs. A recent McKinsey study found that switching to digital and automated processes can reduce the cost of individual processes by up to 80%. Switching to fully digital, mobile-optimized forms, document collection, eSignatures, and payments might initially be an added cost, but in the medium- to long-run, there are significant savings to be had thanks to efficiency and CX wins.

4. Get Serious About Fighting Auto Insurance Fraud

In addition to adopting customer-facing technology to streamline interactions, McKinsey recommends investing in behavioral analytics and automatic fraud detection tools. According to FBI estimates, non-health insurance fraud stands at a whopping $40 billion each year. Of this amount, around $30 billion is property and casualty fraud.

For auto insurers who are eager to sell insurance plans at competitive prices, fraud should be a major focus. P&C insurance fraud costs the average U.S. family between $400 and $700 per year in the form of increased premiums. Preventing fraud prevents insurance price hikes.

5. Reimagine the Role of Employees

With less paperwork to chase and file and more streamlined digital processes, insurance company employees may find themselves with more time on their hands. That’s a good thing. Automation and digitization don’t mean job cuts are inevitable, but it does need that jobs need to be reimagined to bring more value to policyholders and the business itself.

This may mean that sales and claims teams need to be trained to think and act more like trusted advisors, and less like bureaucrats. All the time these employees used to spend on filing paperwork and coordinating choppy processes can now be spent on creating a more delightful and memorable experience for the customer. Over time, insurance companies who take this approach will find themselves attracting and retaining far more customers and therefore revenue.

Before Cutting Jobs, Cut Costs

Of course, there may be instances when job cuts are the painful but necessary part of keeping the business going. But most would agree that it should be a last resort when other options have been attempted and prove insufficient. Expediting sales processes, streamlining claims, investing in customer-facing technology, cracking down on fraud, and elevating the role of insurance employees are all ways auto insurance providers can maximize their ROI and minimize costs.

New call-to-action

Covid-19 Insurance