Stalked By Allstate

STALKED BY ALLSTATE BEING AN AGENT FOR THE GIANT INSURER CAN BE TOUGH-- EVEN TERRIFYING. AN EXTRAORDINARY WAR BETWEEN A COMPANY AND ITS OWN TROOPS IS ONLY GETTING FIERCER.

(FORTUNE Magazine) – Appointment set for [December] 14th with Texas Dept. of Insurance...I strongly believe the only way this will turn out correctly where the truth will come out and there will be a beneficial conclusion for all parties concerned is if Wayne Hedien takes one day out of his busy schedule to personally meet with some of these [agents] and offer them protection to tell the truth...I asked nicely. I gave plenty of time even though my life is in danger. --Letter from Allstate agent Myles Barchas to CEO Wayne Hedien, November 1993 Barchas made a trip to Dallas yesterday and is on the move again this morning...The surveillance lost him for awhile in traffic and had to set up on his apartment and office in hopes of relocating him...The intelligence that has been picked up is that Barchas may be headed to the State Insurance Dept. in Austin. Instructions were given to stay on him. --Allstate corporate security internal memo, December 1993.

Myles Barchas had become one of Allstate's top-selling salesmen--the best in the 550-agent Dallas region--by his 29th birthday in 1993. Working seven-day weeks, he had amassed 3,200 customer accounts, nearly twice the company average. Allstate, headquartered in Northbrook, Illinois, showered Barchas with awards and honors and free exotic vacations that he never had time to accept.

Then one day Barchas's world exploded. Deeply disturbed that his superiors were ordering agents to break state laws that protected consumers from discrimination, he began to blow the whistle. Though the company never admitted doing anything wrong, Barchas's evidence resulted in Allstate's paying what was then the largest insurance fine in Texas history. But Barchas paid too. He was stalked and chased by private eyes for periods spanning six months, according to internal company documents. And with the flick of a computer switch, Allstate took away his business.

Such are the skirmishes in Allstate's continuing war with its agents. Featuring private eyes, high-speed chases, nasty lawsuits, and threats of violence, it is one of the ugliest worker-management face-offs in a major U.S. company, and it is only getting worse.

Allstate says agents under such pressures should invest further in their businesses and hire more staff. The company is beginning to talk again about growing aggressively in some 70% of its markets. But many agents are reluctant to spend, ever fearful that Allstate could decide anytime to slam the brakes on growth or lower commission rates or raise premiums, which are already often higher than State Farm's.

The bottom-line question for NOAs: Why should agents invest their own money in a business where they assume the risks but cannot own anything?

Allstate has developed a new concept--the neighborhood exclusive agent (NEA)--which requires employees to pay 100% of their expenses in return for higher commissions and the opportunity to own their customer accounts after five years. Most agents aren't buying: For one thing, NEAs can be terminated at any time without cause, and any part of their contract can be changed. Only 10% of agents are NEAs, but it's clearly the wave of the future since new hires are given no choice.

Myles Barchas of Dallas is one agent who liked the sound of the NEA deal. Intensely driven, he was hired as an NOA in 1988, built a staff of five, and plowed most of his income back into the business. He willingly became an NEA in 1992 but soon concluded Allstate wasn't living up to its end of the bargain. A private letter ruling from the IRS states that, for Allstate to obtain certain tax breaks, NEAs must be free to run their agencies with "no direction" from Allstate. Yet Barchas was still being required to attend meetings, meet sales quotas, and submit his staff to sales training sessions. He began to complain.

The final straw for Barchas came when he realized that agents were being required to discriminate against many people with spotless driving records, in violation of Texas law. For instance, the law clearly stated that single people or people without prior insurance could not be denied standard rates on that basis. Allstate, in heavy cost-cutting mode and apparently believing such people represented higher risks, tried to skirt the law by accepting only customers that owned two cars. When the state nixed that loophole, Allstate created another: It excluded people who lived in apartment buildings without covered parking garages. Customers they did accept were placed in the highest risk bracket available, paying double what others paid for the same insurance. "Allstate decided that it would cheat to beat its competitors," Barchas says. "They are crooks because they broke the law, and cowards because they couldn't admit it. If everyone just worked together honestly, we could have destroyed the competition."

In early November 1993, Barchas decided to lodge a formal complaint against his regional managers through Allstate's "We Care" program, which supposedly assures whistle blowers confidentiality. Yet three days after the complaint was made, says Barchas, he received a call warning that a supervisor was on his way over and would "break down the door" if necessary. Barchas refused to let him in. Several days later, Barchas says, he received an anonymous death threat on the telephone and began noticing people following him. Overwhelmed by fear, Barchas warned an Allstate manager that "anyone comes through the plane of my door, they get shot." On November 16 he had a security system installed in his home. The man who installed the alarm, a former police officer, saw that Barchas was in such a panicky state that he moved the Allstate agent into his own home in a rural town 80 miles from Dallas.

Allstate claims it was particularly rattled when Barchas called headquarters to announce that a package of materials would be sent to the CEO's home around Thanksgiving. But the package contained only audiotapes proving that agents were breaking the law, plus a copy of a book called How to Succeed in Business Without Lying, Cheating or Stealing.

Allstate's psychiatrist concluded a week later that Barchas posed no danger to any employee, except perhaps to himself. Yet the surveillance continued on and off until the following April. "Myles was scared to death," says Tim Rose, the ex-cop who took the agent into his home. "There's no way Myles was going to hurt anybody. I was going to teach him how to shoot, and he was so uptight about it he wouldn't even hold the pistol. Everybody who has insurance paid for that [surveillance]. Allstate shouldn't have done it."

Backed into a corner, Barchas began to work with a Dallas TV reporter. The frenetic energy he had poured into his sales career would now be applied toward exposing his bosses. The agent went undercover in ten cities, carrying a hidden camera in a shoulder bag and posing as a prospective customer. At every stop, agents refused to insure him for a multitude of illegal reasons: For being single, for owning one car, for declining to buy more than one policy, for having been insured previously by a high-risk carrier, and so on. The TV expose, which aired across Texas in early 1994, prompted what was then the largest insurance fine in Texas history--though at just $850,000 it equaled about six hours' of Allstate's earnings and was a painful lesson for future whistle blowers. "The undercover operation was the impetus to the fine," says Mary Keller, an attorney with the Texas department of insurance. "It was because of Myles's work. We owe him a lot. Allstate flatly broke the law, and they thought they could get away with it."

Allstate agreed to pay the fine without conceding guilt. The company then canceled its advertising with the TV station and sent a letter to policyholders promising to "eliminate any lingering misconceptions" among its agents about what the rules were. But while the letter suggested agents were skirting the law on their own, company memos clearly show that Allstate directed them to do so.

Allstate's surveillance of Barchas is itself under investigation by the Texas Board of Private Investigators, a state agency. One reason is that Barchas's credit report was pulled on three occasions by two companies that have since been linked to a group of Dallas private investigators. When the companies could not justify pulling the reports, their relationships with a major credit agency were terminated. It is a violation of federal law for credit reports to be obtained for improper purposes.

Barchas is suing Allstate and believes he is still being harassed. He entered a parking lot in April to discover that all four of his car doors were wide open, yet no valuables had been removed. Later he nearly lost a wheel while driving down a highway; the lug nuts had all been loosened, according to a Honda repairman. Barchas says he and his father receive repeated hang-up calls at their homes. Shortly after a conversation with this magazine in August, Barchas says he experienced "20 straight hang-ups," followed by an egg splattered against his front door. Allstate says all surveillance activities against Barchas ceased in the spring of 1994. Other agents feel sure they've been stalked by the company, despite its denials.

Allstate's top regional official in Dallas wrote a similar note to his employees. "Many of you feel we, the management team, are not giving you the straight story," he observed. He then instructed underlings who could not answer their opinion surveys in a positive way to call him directly--on a special "straight story" hotline.