“UFAA: The first 23 Years”
This history is based upon a large volume of archival materials, consisting of Hustlers (now called The Achiever), Voices, Field Bulletins, legal briefs, magazine articles and many letters from both management and agents. As well as the oral histories of some of the original key participants. Although I have tried to be factual and objective, it must be said that this history is as seen by the United Farmers Agents Association. Neither can it be claimed that the history is without error. A historian is much like the cop who arrives at the scene of an accident, to sort out the facts. He listens to the witnesses, gathers the facts, and makes an objective report to the best of his ability. If any reader can add to or correct this report, this writer, and all agents, would be forever grateful.
I wish to especially thank Jack Martin, ex-agent, ex-DM, Past President of UFAA, who gave it all for UFAA, for helping me put all the pieces together.
- Paul F. Mitchell, UFAA Historian, 17June, 1990
President James Madison said,
“I believe there are more instances of the abridgement of the freedom of the people by gradual and silent encroachments of those in power, than by violent and sudden usurpations … this danger ought to be wisely guarded against. “
Among its many goals, the United Farmers Agents Association (UFAA) stands to remind the Farmers agent that what is his, or hers, should be carefully conserved. For a better understanding of Farmers, UFAA, our contract and all in regards to the welfare and security of the Agency Force, the following history is given. It is a history that concerns every single Farmers agent, for upon the ‘past is the foundation of every single agency built.
What is this about an agent’s ‘union?’ Aren’t we independent contractors, and not employees? What has happened to create such dissension among the Agency Force that an agents association was created in 1967 and survives to this day? In order to get the full story, we must return to 1945, when the first agent’s contract was written…
The history of discontent among the Farmers Agency Force dates from at least 1945, when the company first created an agent’s contract. As with all future contracts, it was written by the company and without agent input (although it is acknowledged that the company denies this in some cases), and was very definitely in favor of the company. As was to be the case with future contracts, the 1945 contract gave agents the disadvantages of being ‘self-employed’, but tightly controlled them very much like employees. The primary tool of control was contained in Article B-1:
“The Local Agent agrees, in consideration of the Associations’ agreements: 1. To actively represent the Associations and the Exchanges and to produce a satisfactory amount of business of all types written by them… (emphasis mine)”
Thus this contract was a production contract, and what was ‘acceptable production’ was subject to arbitrary change, at that. This clause was followed by another nebulous clause that gave the District Agent (today’s District Manager) control over the agent:
“2. To conform to all roles and regulations of the Associations, the Exchanges and the District Agent…”
The observant reader can instantly see that a District Agent held power over his agents, and could simply tell them what they would do, never mind that they were ‘independent contractors.’
Agents chafed under this control, until a group of Oklahoma agents banded together in 1956 and sought protection through the National Labor Relations Board (NLRB). The agents demonstrated that they were told what and how much to produce, and that they had to obey the company and the District Agent, by contract. This, they asserted, proved that they were actually employees. The NLRB agreed and ordered an election held, to see if the agents wanted the new ‘union’ to represent them in collective bargaining. The union faction lost, and the movement died out. It was, however, the first documented sign that not all was well in Camelot.
As a result of the NLRB hearings, the company replaced the 1945 contract with the “Blue” contract (for its color). This contract did not slacken its tight control of agents, but most noticeably absent were production requirements and the requirement to conform to District Agent rules.
Up until 1967, agents largely worked in a district office, where rent, secretarial and basic phone costs belonged to the District Manager (called the District Agent until that year, as he was also an agent). The District Agent performed claims services, receiving a set fee for each claim, and underwriting as well was brought to him.
In 1967, a new “Yellow” contract was force-fed to agents upon threat of termination (according to many agents). Even more than the Blue contract, the Yellow contract tightened controls on agents, and took away certain rights and ownership concepts. The main function of the Yellow contract was to serve as a legal vehicle for the Agency Development Plan (ADP), which will be discussed shortly. The Yellow contract and ADP should be, however, considered as inseparable by the reader, in order to understand these events of1967.
The Yellow contract reiterated the tight control of the Blue contract; however, specific notable changes were introduced. Guarantees for the payment of claims services by agents were eliminated. The agent now had to provide these services for free, nor would the DM do the services for the agent. This, plus other ADP changes, was claimed by some to cause a 10% income loss. The Yellow contract allowed for no outside business. It also provided that the office of a terminating agent, like the phone, must be given up to the company. Finally, it expanded the ‘noncompetition’ clause, whereby a terminating agent must not compete against Farmers for a time and area. Under the Blue contract it was for one year and in the county of the district. In the Yellow, this became three years, in the county and adjoining counties of the district.
Yet another contract, called the “Green” contract, was created to operate along with the Yellow contract. The difference with this contract was that it was for new agents, and that no contract value was given until the agent reached 1250 policies-in-force (PIF), or had fifteen years with Farmers. As the average agent for the year 1970 had about 950 policies (using company data), it is not hard to see that the company was setting itself in a position whereby it would not have to pay a lot of contract value. Indeed, had the plan been successful, the Green contract holder of today would still only have an average of 927 PIF.
However, it is within ADP that the most obvious and dramatic company takeovers were made.
ADP was, admittedly, an absolutely ingenious plan. Farmers wanted to expand its operations, which met a need for a lot more agents. As with any business expansion, invested dollars reduce corporate profits. However the company observed that it could divert terminated agencies into its own possession, retain half the commission ($22 million in 1986 alone), and fund new agents by having them service the policies for the balance of the commissions.
This stimulated a wave of new agents, who saw a chance to start their career with an instant agency, but who were understandably naive as to the implications and repercussions?
But the established Agency Force saw it as an intrusion into their own domain. Agencies had always been bought and sold between agents, and although the Yellow contract still allowed this, most agencies were being rolled Into the new #500 Series program. The idea of working for less was seen as a dangerous precedent, and some agents thought the company was creating a case for future justification of a #300 Series commission reduction, as well. It must be seen that this was not just doomsayer speculation, as submission reduction has always been part of the agent’s contract. The modem agent need only look to his Allstate counterpart, who currently exists on a 3% renewal commission, or Farmers DM contracts, which have been cut from 1.5% to .5%, to demonstrate industry intent.
The established Agency Force also held that the new wave of agents was causing an overgrazing of the marketplace, in some locations. Although the much abused, largely pointless “One-Mile Rule” was soon to be born, it is observed that agents then, and even more so today, are too closely congregated in most cities. To increase the growth of new agents, the company forced District Agents to sell their agencies and become full-time District Managers. The primary function of any District Manager, as most agents know, is to recruit and train new agents. Finally, to spread the geographical operations of the company, agents were told to establish their own offices. As the DM had largely paid the overhead, this was seen by the agents as yet another “take away”.
Agency Force anger was raising quickly, for they saw that what was their money and property had been confiscated, to be used against them. They observed that the company did not have regard for the agents, and did not consult them before acting.
Other negative side effects occurred. Some unscrupulous DM’s found the #500’s could be used as a tool of money and power. Stories circulated about blocks of # 500’s assigned for kickbacks, which incensed the Agency Force, and the company as well. Frequent charges arose that old-timers, semi-retired or otherwise complacent in production, were being terminated in order that the resulting #500’s subsidize new, young and hungry agents. Company contracts were, and are, influenced by the English common law of termination-at-will, which we recognize as the “ninety-day notice.” It is easily observed that the ability to terminate an agent without cause gives the company an enormous power over the agent. Farmers clings to this concept, even though social evolution and enactments of law continue to erode its foundations. Thus UFAA demands a contract of termination for “just stated cause” only.
The company further aggravated the Agency Force by deciding that policy move-ins should come as a #500 to the new agent. Because the average household moves every four to seven years, this was seen as confiscation-by-attrition.
Lastly, like in 1956, agents felt the company did not regard them as true independent contractors. They demanded to be treated as such, and that the company restrains its abusive district manager force, in particular. Consider the prophetic words of John B. DeNault, Board Director for Farmer’s Fire and Truck Underwriters Associations, in a letter to The Voice, January, 1971:
“…My opinion is, that under the present Farmers plan, agents are being rigidly controlled. Though I am against this control my purpose of opposition is because I believe that ultimately such control will cause our agents to either leave Farmers or to engage in detrimental labor practices. “
Prophetic, for that is exactly what happened, as we shall see.
In reaction to these company actions, irate California agents formed UFAA in May of 1967, and instantly a flashflood of agents across the nation swelled the ranks of membership. ADP was completed Territory-wide in November of 1967, and by then it was evident to the company that it had gone too far. UFAA was seeking legal help, and it was obvious that Farmers was in for a major fight. Indeed, before ADP was completed, the company was already gathering input from DM’s and Presidents Council members for yet another contract, which would hopefully pacify the rebellion. Although the company gave a pluralistic pose by seeking agent input through Presidents council, UFAA wasn’t buying it. The agents were determined to have their own say in the next agent contract.
The new “Buff” contract was a retreat from the Yellow contract and ADP, but not much. ADP remained intact; the #500’s, DM’s, agent expansion, and the resulting negative effects against established agents did not change. The Buff contract did restore some measurable independence, but was still scorned by UFAA’s attorneys. Agents could write outside business without prior approval, the termination notice was extended to a 90-day notice; the Non-Competition clause was reduced to one year, and only in the agent’s district. A Termination Review Board was added, albeit without legal teeth. Finally, to sweeten the pot, agents would now get new business commissions for a 12-month period following their terminations. (Previously, any unpaid new business commissions were simply forfeited to the company). However, ADP and its takeaways remained virtually intact.
In 1967, a delegation of UFAA officers went to see FIG-CEO Robert Early, under the open door policy. Mr. Early refused to see them, as “UFAA did not represent the Agency Force,” never mind that they represented some two thousand agents). After agreeing to see several officers as individual agents, Mr. Early thanked them for their opinions, but that the contract could not be changed for individual agents (Catch 22).
After finding that Farmers would not listen to them, the agents took their concerns to the NLRB. Examining the Buff contract: and hearing testimony on Farmers business practices, the NLRB held (for the second time since 1956) that agents were employees.
UFAA wanted specific guarantees:
When the NLRB held that UFAA was a union for the purposes of bargaining, Farmers paradoxically won a mighty weapon of disinformation. The buzz-word of “union” was perpetuated by anti-UFAA elements, who painted sublimely ridiculous pictures of striking against and picketing one’s own office. The term totally distorted the issues and gained the company a large agency vote. It is still used very effectively to this day to distort what UFAA stands for. Since the end of the ‘NLRB days’ in 1974, UFAA ceased being a union, nor did it ever desire to be one.
The last thing Farmers wanted was to lose control of the agents and the unilateral way of handing down business decisions. It knew that it was competing for agent loyalty and votes, and so painted a picture of openness and concern for agent opinion and welfare. In 1969 the company turned The Hustler from a sales tool to agent communication, something it had not been for many years. Agent questions and company answers began appearing in print, many of them openly belligerent “Do I really need my DM?”). The NLRB and UFAA were repeatedly discussed in print, although strictly from a Farmers perspective. Although UFAA gave sufficient rebuttal in its own publications, The Hustler never countenanced a debate between the two factions, despite intense Agency Force interest.
In 1970 Farmers mailed out the Agent Profile and Opinion Survey to the Agency Force, striking a very democratic pose in addressing the issues of the day. Agents were to grade their degree of agreement to various questions posed, such as:
The very fact that these questions were asked demonstrates that very serious problems existed in the areas of the contract, complaints, independence, morale and job security.
In 1970 the first union election would determine whether a majority of agents wanted UFAA to represent them in bargaining. Both sides campaigned vigorously, and FIG-CEO Robert Early even mailed out a last-minute, voice-recorded appeal, extolling the virtues of not being in a “union,” the American Way and the security of one’s family. UFAA polled 42% on the first vote, something seldom heard of in union organizing. Still, it lost. But although UFAA did not win the election, neither had Farmers reversed the NLRB decision that agents were employees. It was a nervous stalemate for both sides.
In 1971, Farmers appealed to the NLRB, and lost again when the NLRB reaffirmed that the agents were employees for bargaining purposes. Farmers continued its ‘glasnost’ campaign for agent loyalty when it launched the Agency Relation Task Group (ARTG). In this program Los Angeles Home Office (LARO) executives went out across the Operating Territory for face-to-face, no-questions-barred meetings with agents. DM’s and regional office personnel were not allowed at these meetings which were afterwards highly publicized in The Hustler. Concrete company concessions resulting from ARTO were that FIE auto commissions in California were raised from 9% to 10%; purchase of #800 Series (large commercial accounts) from the company allowed; and folio checks were taken from the control of the DM and sent directly to the agent.
On April 8th, 1974, UFAA lost the war when the NLRB reversed itself and declared agents ‘independent contractors.’ Although it is impossible to determine, it is known that the NLRB has been politicized in its history, and some hold that company pressure in high political circles caused the reversal. It is interesting to note the attitude of Farmers in overview of the period. When Farmers spoke of the NLRB previous to obtaining the desired ruling in 1974, it emphasized that the NLRB had limits to its authority and that ‘this was not the final say.’ After the desired decision, CEO Robert Early rushed to announce the essential message of ‘it’s over, so let’s be friends again.’ The Hustler never again mentioned UFAA. The face-to-face meetings of LAHO and agents through ARTG were never repeated. Never again was an Opinion Survey issued. In 1978, the last of the pointed Questions and Answers columns disappeared from The Hustler. ‘Glasnost’ was dead.
UFAA went into decline after 1974. To understand why, we must remember that although the agents lost the ‘Thrilla in Manila,’ they didn’t go home empty-handed. Passions were cooled by the pay raise for California agents. The company had been forced to tear up the Yellow contract, cut back the #500 Series takeover and restore move-in’s to the #300 Series. If the Buff contract was far from what the agents wanted, it was still a victory that they had forced the company to write it in the first place. The company gave sworn testimony before the government, and the agents believed that it would have to abide by it. UFAA was a militia, and militias have a tendency to leave the army when there is no fighting at hand. They had won a lot on a shoestring budget, had forced a company with a huge war chest to back off, and they figured it was enough. The militia went home, and UFAA nearly died out.
But agents began filing lawsuits when they found that Farmers was not abiding by its own NLRB testimony. Interest in UFAA rose again in 1980, and this time the association was to be permanently glued together by a single act of the Treasurer, Carl Wyatt. By putting the membership dues on an automatic bank withdrawal plan, Carl permanently stabilized membership retention.
Farmers was reneging on its statements that agents owned their agencies, could sell them to anyone, or leave with the agency and compete against Farmers. It is incredible that Farmers would deny what was in writing, but that is exactly what they did. In 1973, Farmers had stated in sworn testimony in the NLRB:
“The yellow agreement prohibited a terminated agent from competing under any circumstance Under the Buff agreement he may elect on termination to decline contract value and thereby retain the right to compete against Farmers without restriction.” (Pg 40)
Yet Farmers began fighting departing agents for their agencies, and in January, 1982, issued a letter to the Agency force reinterpreting Paragraphs G and H of the Buff contract, which completely contradicted its NLRB testimonies:
“In effect Paragraph G of the Agents Appointment Agreement gives the Companies the right to pay contract value, a right which the Companies intend to exercise… Upon tender of payment of contract value the agent is required to transfer all of his or her interest in the agency to the Companies. ..”
Agents were irate, and membership in UFAA increased enormously, overnight. By 1982, an agent exodus to independence was sweeping the country as Board Director DeNault had predicted. Faced with a growing crisis, Farmers tried by hauling “defecting” agents into court, resulting in countersuits to determine ownership.
And, in a subsequential crisis, Farmers found in court that the Buff contract usually took a judicial beating. Judges repetitively awarded huge damage settlements to agents, accompanied by summaries worded in the most caustic of terms:
“… the interests of the people of Oklahoma are not best served by a marketplace of cut-throat business dealings where the law of the jungle is thinly clad in contractual lace.”
- (FIG vs. Hall, 1985, Oklahoma Supreme Court)
“…unconscionable and ambiguous…”
- (FIG· vs Tipton, 3rd District Appeals Court, Indiana, 1985)
In 1983 California agent Richard Heston won a huge settlement and settled the right of Buff contract holders to take their agencies and become independent. Heston had waved Farmers own words from the NLRB hearings, and won. The company was evidently tired of being reminded of what it had said, as is evidenced in the following quote:
“We comment on Farmers’ lament that ‘surely Farmers is not bound for all eternity to (the statements made in the 1973 NLRB brief) and forever foreclosed from seeking injunctive relief . . . The obvious answer is for Farmers to rid itself of inherently conflicting and ambiguous contracts and to draft ones that will withstand judicial scrutiny.” (Heston vs. FIG, 1984, California Court of Appeal)
As a trial judge said, the conclusion was to rewrite a contract that clearly spelled out who controlled the policies. In September of 1984, Farmers sent out a new contract for agents to sign. To influence agents into signing (it was not force-fed as in 1967), the company announced that only those holding the new contract would receive Underwriting Contract Bonuses, “as it was guaranteed only in the new contract.” Agents observed that it does not take a contract to give away money, and consequently this was considered an unfair ploy.
Whatever the contents within the new contract, it should be fairly obvious that the company did not magnanimously set out to write a new contract for the welfare of its agents. Rather it wrote a new contract to re-define policy ownership (and wise DM’s now refrain from telling perspective agents that they will “own their business”) Regrettably, most agents gave up the security of being an owner and ‘sold the farm.’ To become a ‘tenant farmer.’
In July of 1971, Farmers instituted a system of underwriting authority levels for FIE auto, called the Field Underwriting Authority Program. Under this system, agents bound risks according to degrees of authority, based upon one’s losses. Should an agent gain a certain degree of unprofitability, he or she lost the ability to bind preferred FIE auto, and had to submit the risk for approval. Farmers presented this as a program that agents had asked for, in order to oversee those agents writing poor business. Whether this was an agent creation is a moot point, but if true, it turned against its creators like the Frankenstein monster.
It is not known exactly when agency terminations began for poor loss ratios, but the company made it clear from the start that LUA’s were considered ‘bad’ agents. Many agents believed this, even resigning because they believed they were ‘bad’ agents. Company slogans such as, “you are 100% responsible for the profit or losses in your agency,” reinforced the belief.
After UFAA’s revival in 1980, agents started forcefully questioning the idea that the LUA was necessarily a ‘bad’ agent. They pointed out that the company sets the underwriting rules, formulates premiums, and the agent cannot overrule them. The company accepts or declines applications, based on its own analysis. The National Association of Insurance Commissioners (NAIC) published a June, 1987 report which said,
“The collection, interpretation and dissemination of data is necessary since individual insurers are not sufficiently large enough to acquire data to be actuarially reliable.”
Farmers agents seized this authoritative comment, reasoning that if whole companies were not large enough for a profitable data base, why did Farmers insist the small agency was accountable, immune to bad luck or uncontrollable influences, and upon threat of termination?
Company contradictions are perplexing; the agent sells to a client who chances to file a claim, and the company terminates the agent. But, they vigorously fight to keep the departing agent from taking the unprofitable business with him!
Agents are beginning to hold that losses are ultimately a company problem. They reason that if an agent’s Experience Analysis proves he has performed acceptably as an underwriter, then the problem must be with company rules or actuarial tables, or outside influences such as government edicts (such as California’s Proposition 103, of 1988). Thus UFAA holds that an agent should be judged by his efforts, not whether he is actually profitable.
Minnesota UFAA members took the company head-on in the 1986 state legislature. The issue over the LUA program and terminations reached its peak when both houses unanimously voted into law the banning of terminations for loss ratio, as well as revocations of agent underwriting authority. Minnesota Insurance Commissioner Mike Hatch wrote to UFAA President Keith Van de Walker in 1987, stating,
“It is inappropriate that an insurance agent should be penalized for selling insurance to people who happen to file claims…To penalize an insurance agent for having sold the policy to somebody who is accepted according to the underwriting standards of the company is untenable.”
Hatch reaffirmed his position in person to UFAA’s 1988 National Convention in Minneapolis.
In June of 1989, Nevada UFAA members convinced their Legislature to pass the same law, and agents in other states planned similar attempts.
The forecast is that UFAA will continue to be a viable alternative to what is offered in the company store. Agents will continue to press for their representatives to be accepted for negotiations, for all of the issues and reasons examined in this report. Human nature being what it is, it can be no other way. It is the hope of all that the day will come soon, when the company realizes that it would be best to negotiate, as opposed to all the negatives involved in a ‘family fight.
It must be remembered that FIG-CEO Robert Early refused to receive a UFAA delegation in 1968, stating that they did not represent the entire Agency Force. Since this date, Farmers has entrenched itself even more in this policy, refusing to even acknowledge letters from UFAA officers. In 1988, Farmers reversed a long-standing policy of not endorsing any association, by promoting the National Association of Life Underwriters, and even offering folio-deduction for membership dues. When asked if it would now consider recognizing and talking with an association of its own agents, Farmers did not respond. Because of this discrepancy, UFAA asks the question: “Why will Farmers promote NALU, which most assuredly does not represent every life agent, yet will not even speak with a large group of its own agents, assumabley on the same grounds Mr. Early gave, ‘that UFAA does not represent all agents?'”
UFAA has, in many cases, justifiably earned a reputation of being negative for bitter and tactless statements. Those are correctable. But in considering UFAA, it must contemplated what it would be like, had there been no 1956 Oklahoma agents, no UFAA of 1967. The agent would be governed by arbitrary ‘DM-rule’, with dictated production requirements, mandatory meetings, selected training, evening and Saturday office hours, and the DM would still control the agent’s folio check. Commissions would vary between states. Many agents would never receive contract value. Move-in’s would be in the #500 Series (which speculatively could be larger in PIF than today). There would be no outside business. There would be no legal data base, no advice available to the agent in trouble. In short, it would only be the company store for options. Most of all, the company, the regions, and the DM’s would feel little or no caution in implementing whatever programs they desired, because disorganized agents have no hope of successfully objecting.
The future of every agent depends on how serious Farmers takes the Agency Force today. This equation is simply determined by how united agents are, and if they will stand up for themselves. As Benjamin Franklin said, “We must all hang together or assuredly we shall all hang separately.” It is most certain that no one else will represent the agent, but the agent.