A group of Farmers Group Inc. agents have filed a lawsuit in Los Angeles Superior Court alleging the Los Angeles, Calif.-based carrier has undercut them by sharing their data with a competing subsidiary and several contract violations.
The United Farmers Agents Association alleges in its suit that the U.S. subsidiary of Zurich Financial Services in 2009 “began orchestrating and engaging in a series of improper actions” at the expense of Farmers agents.
Those alleged actions include Farmers unilaterally changing the terms of the contracts with its agents, the company using client data gathered by Farmers agents to undercut them and terminating agents through a purposely rigorous new set of standards to take away their books of business and give them to agents making lower commissions.
“Under this scheme, Farmers utilizes information and data about the Agents’ policyholders – information and data acquired by the Agents through Agents’ efforts – to directly solicit those Agents’ existing policyholders with less expensive insurance policies sold through a subsidiary of the exchanges,” the suit states.
The fallout between Farmers and its agents seems to have started in 2009 with Farmers purchase of direct writer 21st Century Insurance Group. Following that buyout, Farmers unveiled a series of performance programs subjecting agents to new standards, including production minimums, quoting requirements and office hours, according to the suit.
In 2009 Farmers introduced a modified version of the contract that pertains to agents who entered the contract after that date. That same year Farmers acquired 21st Century, a direct writer of primarily automobile and homeowners’ insurance.
Farmers completed the acquisition of 100 percent of AIG’s U.S. Personal Auto Group, which included 21st Century Insurance, in July 2009. In addition to 21st Century Insurance, the acquisition included the former AIG Direct business and Agency Auto business. The purchase price amounted to approximately $1.9 billion.
Unlike the agent-based model, 21st Century does not rely on agents to sell its insurance products, instead it markets and writes policies directly to consumers.
“By employing a direct writer approach, 21st Century can offer insurance at low rates which undercut the rates being charged to the Agents’ own customers and policyholders,” the suit states.
Following the purchase of Century 21, Farmers began using applicant and policyholder data from agents under contract with Farmers and disseminating it to 21st Century and other Farmers-held companies that were competitors of its own agents, according to the suit.
“In both cases, Farmers, through 21st Century or another competitor, would then typically offer insurance policies to the Agents’ policyholders and prospective policyholders at lower prices than those which Agents could offer,” the suit states.
“These new programs were unlike any past programs, in that they impose explicit production minimums upon Agents without their consent; irrespective of an Agent’s past performance; and without regard for whether an Agent even markets and sells the particular type(s) of insurance required to be marketed and sold under the various programs,” the suit states.
UFAA President Tom Schrader declined to discuss the suit in detail, citing his fears that bad publicity would impact Farmers’ clients and agents negatively.
“This is a fundamental disagreement between the company and the agents and we prefer to handle it in-house without airing our dirty laundry,” Schrader said.
Farmers spokesman Mark Toohey offered the following statement:
“Farmers Insurance strongly disagrees with the issues raised in this lawsuit. During our nearly 85-years of doing business in the United States, Farmers Insurance has taken great pride in the strong relationship we have developed with our agents and we look forward to the future.”
The suit continues: “Farmers has used and continues to use these programs as a basis for taking disciplinary and other action against Agents, including termination, in violation of the contracts, which do not contain any provision requiring Agents to meet performance standards of any kind.”
According to the suit, Farmers has also taken action against agents on the basis of the location and type of offices being maintained by agents.
UFAA is a not-for-profit professional trade association, and is a member of the Coalition of Exclusive Agents Associations Inc., a national organization of exclusive agent associations whose companies insure over 60 million families. UFAA describes itself as a voluntary membership organization with the purpose of improving working conditions for Farmers insurance agents.
Each member of UFAA represented in the suit has a contract with Farmers. Under the contract agents serve as independent contractors of Farmers and must extend the right of first refusal to Farmers to bind insurance coverage on behalf of applicants procured by the agents.
Aside from sharing agents’ clientele information and contract violations, the suit alleges that Farmers has been terminating some agents for failing to meet the new guidelines and taking their books of business, which under contract is owned by Farmers, and using those books of business to provide seed accounts to newly signed agents earning a smaller commission.
The suit further alleges that the new performance standards imposed upon agents by Farmers are designed to be difficult to meet and they are being used as a pretext for terminating agents.
Aside from setting daily minimums for agents to contact, quote and present insurance products, the new program often also requires agents to market or sell products they have never sold before, according to the suit.
The suit seeks declaratory relief and seeks a jury trial. No trial date has been set. Neither Farmers parent Zurich nor 21st Century are named as parties in the suit.
Click here to read a copy of the lawsuit online.