The cuts and related office closures will bring a restructuring charge of about $290 million, most of which will be recognized this quarter, according to a filing Wednesday. The cuts amount to about 8% of the roughly 46,000 employees it had at the end of 2019.
Allstate embarked on a plan last year to boost growth at the company’s home and auto insurance business, with moves to phase out the Esurance brand and combine several units it had bought into a single operation. And in July, the company agreed to buy National General Holdings Corp. for about $4 billion in its biggest acquisition ever.
The cuts will help “create a more competitive auto-insurance price,” Chief Executive Officer Tom Wilson said in a phone interview. “We needed to lower costs so we could still earn an attractive return.”
Allstate’s announcement adds to the grim outlook for the U.S. worker. Employers such as Walt Disney Co. have announced plans to cut thousands of workers, and U.S. airlines are preparing to lay off tens of thousands of workers starting this week unless there’s more federal aid.
The plan Allstate announced in December sought to reduce costs by merging the Allstate, Esurance, Encompass and Answer Financial groups into one business. The company said the move would free up money to spend on new technology and more marketing of its Allstate brand. The National General deal, which is expected to close in early 2021, would add about 9,000 employees.
Auto insurers benefited from stay-at-home orders at the start of the pandemic as less driving translated into fewer accidents. Firms including Allstate returned a portion of premiums to customers. While the bulk of the job cuts relate to Allstate’s business revamp, Wilson said that fewer auto accidents means the insurer needs less staff.
“This is a big first step, but this is not the end of our need to continue to reduce costs,” Wilson said. “We’ll be reducing costs for three or four years. There’s a lot of work we have to do.”
Allstate plays in a highly competitive insurance market in the U.S. The growth plan announced last year was a move to help it better compete against rivals such as State Farm Mutual Automobile Insurance Co., Berkshire Hathaway Inc.’s Geico and Progressive Corp.
Wilson said Allstate initially held off on job cuts as the pandemic swept the U.S.
“We waited a little bit until we could see that the economy was starting to pick up some,” Wilson said. “We could have done this earlier, but we waited a little bit to get ourselves aligned and to build a set of programs out which help people get new jobs.”
The firm is also feeling the pain of low interest rates with its annual review of business lines including life insurance and annuities. That will reduce third-quarter net income by about $450 million to $550 million, and adjusted net income by about $240 million to $280 million, according to the filing.