State Farm has told its 19,000 agents it is significantly reducing their compensation and benefits.
The Bloomington-based company is also cutting benefits for retired insurance agents. State Farm briefly mentioned the changes last month at the agency convention and sent a pre-recorded video and follow-up email Monday.
State Farm is terminating existing contracts with agents and moving to a single style of contract, said an agent in another state and confirmed by the company. There are currently several types in force, depending on the length of time as an agent, said a retired agent and confirmed by a current one. A former agent who did not wish to be named told WGLT that base commission compensation will fall 35-40% depending on the type of contract and the agent's amount of existing business. A current agent confirmed some of that could be earned back with agents writing more business and meeting company targets.
State Farm has also made buyout offers to agents, said a retired agent. The window to accept or decline the buyout is June 1 through Sept. 30.
“Contracts and expectations with independent agents will include a compensation structure that will continue to incentivize agent engagement to serve the expanding needs of our customers. One consistent compensation structure across agents provides clarity and gives State Farm flexibility to adapt as customer needs evolve — while supporting the entrepreneurial opportunity of independent business ownership,” State Farm said in a statement.
Agents said some of the changes reflect a company shift from a trailing payment arrangement on retained policies to agent commissions based on writing new business. A company spokesperson said that characterization is fair. The company will end payments under the Annual Investment Payment Program [AIPP], a deferred compensation and retirement enhancement offering to reward agents for long-term production and retention of a book of business, said a retired agent.
Agents with more than five years of service had qualified for AIPP. Yearly payments under it were typically about 5% of an agent’s previous year’s production earnings across auto, fire, and health lines of business. The soon-to-end payments had lasted up to 20 years provided an agent stayed with State Farm.
The company will no longer offer health insurance to agents and their spouses, according to the letter sent to agents and retired agents.
“The complexities and changing nature of the health insurance market and associated regulations make it exceptionally challenging to provide independent contractors with a modern benefits offering,” said the company.
The approximate premium was $585 per month per person, said two sources. There were dental and vision elective options as well. Agents will have to seek coverage elsewhere, with potentially much higher costs, depending on the age and health of the insured. An insurance agent in another state who did not wish to be named said the company terminated coverage for agency staff several years ago.
“Resources are being provided to State Farm agents to assist in finding coverage," said State Farm.
Retirees
State Farm is also reducing benefits for retired agents. A May 19 letter sent to retired agents and surviving dependent adults obtained by WGLT indicated those will take effect at the end of the year.
“These changes are part of State Farm’s commitment to serve more customers’ needs. To align with the evolving marketplace, the changes include the termination of non-contractual group benefits,” said the letter.
The company is also ending Medicare supplement support to retired agents of $2,400 per year per person [$4,800 with spouse].
Effects
These changes could reduce the number of agents over time, though a company spokesperson stressed that is not the motivation for the change. “Our focus remains on human plus digital interaction,” said the company.
President and CEO Jon Farney said earlier this month State Farm is focused on becoming a Next Gen Good Neighbor: a State Farm that is faster and tech-enabled, while staying true to its mission and values.
“Our aim is to lead with experiences that are faster, simpler, and still human,” said State Farm CEO Jon Farney in a May 6 blog post. “In a world that can feel increasingly disconnected, State Farm agents provide local presence, trusted guidance, and community. And as we modernize, we’re doing it with the clear principle that technology should strengthen human connection, not substitute for it."
Such shifts are not unique to State Farm.
“Across the board, carriers are cutting commissions. They are cutting bonus plans. They are cutting variable comp,” said Michael Weaver, co-host of The Insurance Buzz podcast, on Monday.
Reaction among agents posting on blogs and Reddit threads showed distress and anger. Two new private Facebook groups for agents governed under two of the three types of contracts were created in the wake of the announcement to share resources and comments. One of them grew to more than 800 members in just five days.
Weaver said the evolution of the industry will continue.
“20 years ago, individuals were told, 'Hey come in here, build a $3-5 million book of business. You sit on it the rest of your career. You have an annuity.' It’s not that anymore. With time, commissions are going to go lower and lower. There is not a doubt. With time, carriers are going to implement AI and automate as many things as possible,” said Weaver.
If agents do depart in significant numbers, Insurance Buzz co-host Courtney Weaver noted that it will allow State Farm to reassign client lists.
“If you stay, there is opportunity to expand. You will have bigger books of business. You will have to grow in different ways. You’ll have to have people that are trained in different ways. You’ll have to adopt different systems and a whole new culture and a whole new way of doing things,” said Courtney Weaver.
Those new challenges include forming deep relationships and offering more personalized advice across insurance lines and financial services, said State Farm Executive Vice President and Chief Digital and Information Officer Joe Park in a blog post May 7.
“Employees will spend less time navigating systems and more time applying judgment, empathy, and expertise in the moments that matter most,” said Park.
He said the role of technology is to make that possible.
“Our customers are clear about what they want. They want things to be easy. Sometimes that means handling things through the app, and other times it means speaking with someone they trust. Both need to work seamlessly,” said Park.
“Customer policies are not affected by the changes to the agent contracts,” said State Farm.
