How State Farm's New Contract Sparked an Uproar

**Jessica Mendoza** (0:05)
A couple of months ago, thousands of agents with the insurance company State Farm converged on Las Vegas for a huge company event.

**Jean Eaglesham** (0:15)
They were flown in, they were put up in hotels on the company's dime.

**Jessica Mendoza** (0:19)
That's our colleague Jean Eaglesham, she covers insurance.

**Jean Eaglesham** (0:23)
And they basically had three days where they were working, but they were also having a pretty good time. They were kind of getting wine and dined, they had a pink concert.

**Jessica Mendoza** (0:32)
As in the artist pink.

**Jean Eaglesham** (0:34)
Free concert. They had Jake from, the actor who plays Jake in the commercials was taking selfies with them.

**Jessica Mendoza** (0:43)
I mean, he had to be there.

**Jean Eaglesham** (0:54)
So it was a pretty fun time.
And then right at the end, the CEO got on stage and kind of dropped a bombshell. So he told this whole stadium full of insurance sales agents, we're axing your contract. We're moving you to a new contracts.

**Jessica Mendoza** (1:17)
And so in that moment when the CEO makes this announcement, what was the vibe in the room like?

**Jean Eaglesham** (1:23)
It was just a sort of hush because it had been a very celebratory kind of vibe. And then there's just this, what does that mean kind of feeling in the air? Like what's happening? And there's this sort of stunned silence.
And then when they got back to their offices, then they got a pre-recorded video, an email with all the gory details.

**Jessica Mendoza** (1:47)
Those details included things like big cuts to benefits and more use of AI. This contract revamp is part of a push by State Farm to stay on top of the insurance business as its competitors start to get ahead.

**Jean Eaglesham** (2:03)
State Farm is the gorilla in the room.
State Farm cherishes its position as number one in home and for decades and decades as number one in auto. It's been the market leader in auto since at least the Second World War. And I think it's deeply painful to think they're losing that crown. So they're looking to the future and they're saying, we can't afford to lag behind. We have to catch up.

**Jessica Mendoza** (2:34)
But in the process, the company has faced a backlash from its agents.

**Jean Eaglesham** (2:39)
The agents who contacted us, they feel really the company has almost turned on them, and there's a real feeling of anger and upset.

**Jessica Mendoza** (2:53)
Welcome to The Journal, our show about money, business and power. I'm Jessica Mendoza. It's Monday, July 20th.
Coming up on the show, a shakeup at State Farm sparks an uproar.

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**Jessica Mendoza** (3:55)
State Farm has been around for over a century. It was founded in 1922 by, you guessed it, a farmer who went on to become an insurance agent.
And over the years, State Farm grew into an insurance behemoth.

**Jean Eaglesham** (4:09)
They're the leading home insurer. They were until recently the biggest auto insurer.

**Jessica Mendoza** (4:16)
State Farm has dominated the insurance industry in large part thanks to its agent-led business model.
The company built its reputation on having local agents all over the country who could respond to customers quickly. The State Farm agents are there. You know, like the classic jingle says.

**Jean Eaglesham** (4:32)
Like a good neighbor, State Farm is there.

**Jessica Mendoza** (4:36)
Can you talk about State Farm's business model?

**Jean Eaglesham** (4:39)
Yeah, the model is they're independent contractors, so they're running their own businesses. They're entrepreneurs, but they only sell State Farm policies. They get their computers, their equipment from State Farm. They sell within essentially rules laid down by State Farm.
So one of them said to me, we're not independent in the sense you would normally understand it. It's not like we can negotiate our own contract or our own terms, but we're independent in the sense that we run our own little business.

**Jessica Mendoza** (5:12)
And even though agents are not employees, they still got access to a great benefits package. State Farm agents had several health insurance options, and they got some retirement-style perks, like a program that pays out a percentage of their income once they've worked there for five years.