Bruce Murphy
Murphy’s Law

The Greed of American Family

Jury finds insurance company underpays agents, as execs get rich.

By - Apr 27th, 2017 01:44 pm
American Family Insurance

American Family Insurance

Last week a jury ruled that the Madison-based company, American Family Insurance, has grossly underpaid retirement benefits to its agents, and may owe them as much as $1 billion. Why would a company want to treat its agents, who are so critical to its success, in this way? The answer tells us a lot about the state of American business today.

American Family began modestly, as a small company founded in the 1920s that mostly provided car insurance to Wisconsin’s farmers, who were considered lower risks than city drivers because they drove less often. Over the decades the company gradually added other customers and other lines of insurance and today sells insurance in 19 states.

Despite that growth, the company remained a mutual company, meaning it is owned by its policy holders rather than stock holders. And the policy holders in turn have their closest relationship with the company’s insurance agents. As the company’s website notes, “American Family Insurance and its sales force of nearly 3,500 agents provide industry-leading service to customers… No matter how life changes, your American Family agent will be there, providing the caring support and dependable service you deserve.”

But by the mid-1990s, that homey sounding philosophy began to change as the company moved toward the winner-take-all philosophy of America’s corporate board rooms. By 1994, as Business Week then reported, corporate executive pay had skyrocketed over a 20 year period: In 1974, CEOS in America earned about 35 times more than the average worker, but by 1994 they made 150 times more.

American Family began jacking up its executive pay, as a column I did for Milwaukee Magazine back then documented. CEO Dale Mathwich saw his compensation rise by 26 percent in 1994, rising from $681,192 to $856,121. The company now had 23 executives making more than $200,000, up from just two the year before.

Meanwhile, the agents, who worked on commission only, were being forced to take a 10 percent cut in commissions while increasing the amount of paperwork they handled for the company. In response, one agent named Dan Gadzinski organized a proxy fight, pushing American Family policy holders to elect a different slate of company directors.

Gadzinski had worked for the company for 29 years, supporting his two children and his wife of 32 years, was a U.S. Navy veteran, regular church goer, and seemed to embody the American dream of middle-class success. As an American Family policyholder, he was one of the company’s owners and felt he had a right to organize the proxy fight. The company felt differently and fired him.

In the years since then, compensation for corporate executives has, if anything, grown at an even faster pace. By 2014 CEOs were earning 331 times more than the average worker; that was more than twice the gap in Switzerland and Germany, about four times bigger than in Australia and five times bigger than in Japan, the business publication found.

At American Family, its top 10 officers earned $23.6 million in 2014, led by chairman and CEO Jack Salzwedel with $8.1 million and president and COO Daniel R. Schultz with $4.1 million. Salzwedel’s pay is 12-times higher than the company CEO earned back in 1994.

“We are totally startled at the HUGE increases the AmFam officers took for 2014. Absolutely FLOORED! “ wrote an analyst for the NAAFA, which represents insurance agents nationally. “The average increase for the top ten officers was 27.81%. Overall… our top ten officers cost the company 34.4% more in 2014 than they did in 2013.”

The analysis noted that American Family’s board of directors, which approved these huge raises, is well-paid by the company, with an average annual fee of $122,875 per member.

Certainly the company has been successful. In the mid-1990s it had grown large enough to join the Fortune 500 and today, with annual revenue of $8.7 billion, has risen to the 332nd biggest company on the list.

And how much of that success has been shared with the company’s agents, which its website tells customers is “your very own dream champion. No matter how life changes, they’ll be by your side, ready to support you.”

A jury has found that the company violated the federal Employee Retirement Income Security Act and owes money to 6,978 current and former American Family agents across the country, including about 700 based in Wisconsin.

“You can work for American Family for 10 years and not get any retirement benefits,” notes Milwaukee attorney Charles Crueger, who along with his partner Erin Dickinson is representing the agents. Agents aren’t vested, the retirement money can always be taken away, and the company hasn’t put “a dime” into the plan, Dickinson noted.

If the judge agrees with the jury’s advisory finding, the company would be required to “restore and protect retirement benefits,” as the Milwaukee Journal Sentinel reported, providing full vesting for agents and creating a retirement fund that could cost the company more than $1 billion.

American Family claims the agents it touts as so critical to the company are actually “independent contractors” who needn’t be offered these benefits. But Dickinson noted that they are “captive agents” who cannot shop around for insurance from other companies for their customers, and can only sell American Family policies.

“A company cannot just call its agents ‘independent contractors’ to avoid following the federal law protecting retirement benefits and then insist on controlling how those agents do their work,” she told the media.

American Family spokesman Ken Muth told the media “We strongly disagree” with the jury’s finding.

As for how the company treats its employees, its website declares that “Our holistic approach to employee well-being goes beyond promoting physical health and nutrition. We focus on overall quality of life including mental health, stress management, mindfulness and emotional well-being, financial health, community engagement and social well-being.

There was no mention of retirement benefits in that description.

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20 thoughts on “Murphy’s Law: The Greed of American Family”

  1. JK says:

    This outcome has some twists and turns to it. There were two similar cases against Uber last year where the plaintiffs negotiated a settlement rather than requiring the benefits. In a “Gig” economy, we might expect contractor groups and employers to resolve through settlements rather than employer benefits. Employers are not required to provide retirement benefits to its employees or agents/contractors. American Family could close/freeze their retirement benefits programs altogether and the agents’ argument would be moot. What’s interesting to me in this instance is that the court obviously ruled according to the letter of the ERISA law, but the Agents have many benefits that employees do not…which makes this case not about a big company beating up on their workers. For example, they can set up their own tax-advantaged retirement program, they can right off virtually all of their work expenses. Employees don’t have these benefits. Also the argument that they are not really agents because they can’t sell for other companies is not accurate. I assume they signed a contract with AmFam at some point which makes them exclusive to that company. They can always quit and represent other companies’ products.

  2. bb says:

    This is really about the owners of the company, the policy holders. Policy holders need to realize and take back their power. They can speak out and get rid of egregious management like this. Just as importantly, the profits of the company should be going back to the owners, not the 10 top executives. These executives have no “sweat equity” in building the company nor are they “at risk” for any of the company’s financial liabilities both of which would entitle them to larger compensation, They are pillaging the owners and agents for their own undeserved gain. The profits should be distributed to the owners either as dividends or lower insurance rates. The rubber stamping, over-paid, “friends club” boards around the country should be replaced with those who really work in the best interest of the owners.

  3. JPKMKE says:

    I’m not close to it but what I see are moderate salaries for their top execs compared to their peers with large bonuses consistent with growth. It looks like they’ve almost doubled policies in force over the last 20 years with roughly the same number of employees. Most companies can’t do that. Keeping in mind that a C-level executive’s first obligation is to the shareholders/owners, I don’t see a company that is not benefiting from the investment they make in their executives. The agents might have a beef but that doesn’t necessarily mean the leaders are not acting in the best interest of the shareholders.

  4. Deb Strzelecki says:

    I had been a loyal customer of Am Fam for over 35 years. No claims as far as home owner’s and got a speeding ticket for 10 over back in 1990. In the 2000s, my rates went up every year. Plus, even though I’d had the breed since 1975, I had to start paying $100 a year more for owning a Doberman, never mind all of my Dobes have had obedience and canine good citizen degrees. My current Dobe is also a TDI registered therapy dog. None the less, I still had to shell out that extra $100 every year for having a “dangerous breed.”
    I finally shopped around and am now a State Farm customer. Much more extensive coverage for far less.
    Am Fam can go to hell.

  5. Tom D says:

    JK (post 1): Three points:

    1. One big difference between Uber drivers and these agents is that Uber drivers are NOT exclusive–they can drive for Lyft (using the same car) at will; many Uber drivers do just that and keep both apps open on their cell phones as they drive around. There is no way these agents would be permitted to sell State Farm policies.

    2. These agents don’t “have many benefits that employees do not” (at least not any you listed). Tax-advantaged retirement plans–401(k) or defined-benefit plans–ARE available to many employees (including those at American Family Insurance). Likewise, employees can write off expenses that come out of their own pockets (like office space). Besides, most employees have no work-related expenses at all (other than commutation). And commutation expenses aren’t deductible for independent contractors either.

    3. Even if American Family terminates its retirement plan, these agents’ claims are not moot. Any termination would only affect benefits going forward, and these agents are demanding benefits for PAST service (which would not be affected by a plan termination).

  6. JK says:

    Tom D

    1) I think I made the same point, only I am saying that at some point the exclusive arrangement they signed with AmFam was agreeable. Now they are saying that it doesn’t serve them well. I don’t think Uber drivers should be treated as employees either.

    2) You must mean commuting expenses. Otherwise my comment was not to say the employees did not have access to employer provided benefit plans. It was to refer to other options which conceivably the Agents could set up. If, somehow due to the agreement the Agents have with the company, they do not qualify for normal business expense accounting and tax treatment, then that is the agreement they signed. Claiming that the provider of the product they sell is now (and retroactively) liable for something they never agreed to provide to Agents may work under ERISA but seems a bit unjust don’t you think? I compare it to agreeing to provide a service for a $1 and then when you find out years later that you could have agreed to $2, you try to hold the buyer to the new price even though that is not what your contract says.

    3) You are correct that they are technically not moot. I was obviously making the point that companies are not required to provide retirement benefits to employees or contractors.

  7. Mike says:

    I know of another shady practice this company participates in. I asked American family for a home insurance quote about four years ago. They said they couldn’t help me because I had galvanized steel water pipes in my house. There is nothing wrong with this material pipe, it just happens to be in most old homes. Not insuring these homes is a form of redlining (which I believe is illigal).

  8. AW says:

    JK, it’s not just the point of the agreement, which yes, both parties at one time did indeed accept and sign.

    Agents go in thinking, they will indeed, be independent contractors and own their own business. They later discover, that they can’t hire employees for their office without AmFam approval, AmFam can terminate the agents staff, AmFam must approve office location, agents are required to attend meetings, agents computers usage is monitored, their office hours are set by the company, and the list goes on and on. AmFam also owns all of the policies that the agents write. If an agent wanted to pass the “business” THEY built down to the next generation, it is not their call to do so. That is not the definition of an independent contractor/self employed business owner.

    In a nut shell, AmFam agents are independent cotractors for AmFam, when it is convenient for them to be…taxes, ERISA and operating expenses for those 3,500+ agency locations.

  9. JK says:

    I’m sure you’re right, AW. I have not seen the agreement. I am not affiliated with AmFam in any way and I am not defending the company. However this story is about a company which grew it’s business tremendously in the last twenty years, was not obligated to pay their contract agents retirement benefits, and now is facing a new requirement. The story hypothesizes that greed and success led to higher exec salaries with lower pay for agents than they deserve. I just don’t agree. There is so much more to this story than agent victimization. The IRS rules for assessing contractors treated as employees are meant to increase taxes on employment. They are not meant to somehow defend downtrodden contractors who don’t like the deal they signed once up on a time.

  10. AW says:

    They didn’t hold up their end of the bargain – i was an amfam agent for over 20 years and we were NOT self employed, except for paying all office expenses and self employment tax. They mandated and controlled everything we did. the contract never said that they would tell we would be independent contractors to get us to sign on and then change and truly treat us as employees.

  11. Bob S says:

    I wish I had access to the percentage of American Family agents that are terminated or ‘resign’ within 12 months of becoming vested in the ‘retirement program’.

    In my opinion AmFam should also have punitive damages tacked on, they deserve it.

  12. What is the most recent update on this issue? It’s now June 21

  13. Torpedo says:

    Its hilarious to see the ding dongs posting there stupid underwriting issues on here. We are trying to discuss the implications of a massive lawsuit to the tune of billions… not hear about your dogs or pipes. As far as the galvanized pipes are concerned… i worked at amfam for a long time… ive never heard of such thing as I never was required to look at pipes. With that being said… if you had poor pipes or water claims or whatnot it certainly may have been an issue for eligibility.

    American Family lost a massive lawsuit in the 90s over redlining to the tune of around 30 million as one of the managers decided to direct his employee agents to redline and my experience was the company was very leery to ensure their agents werent redlining after that.

    As a employee with the company I do agree with the lawsuits verdict (despite my belief that the actual agents will recieve a paltry to non existent sum of the settlement). The things my former manager pulled when were absolutely aggregious 1099 violations and when i went to an attorney they actually made me aware of this great lawsuit. I do however feel bad for any potential negative implications this decision may have on some of the current agents who are by and large hard working honest good people.

  14. Gene Hawker says:

    I have been with American Family Ins for many years. We just recently had 3 weather related claims on our home. We got a notice of nonrenewal. I am a retired Idaho State Police Officer. When I got this notice, I inquired about the income of the director to the tune of $8.1 million. This company needs to go strait to ‘Hell. I have dealt with insurance matters my whole career and this company is engaged in financial fraud on the public. My matter will be taken up with every state insurance commission office, and I plan to offer my Investigative experience to anyone who needs help. Gene

  15. Larry says:

    I was an American Family from 1976-1987. Back then they made us rent the office space they picked out ,told us how to dress and based our jobs on how much life Insurance we sold. The State Director wanted to start a new agent friend and needed policies and threatened me until I agreed to sell the company policies I worked hard to build up. I fought back and they went after another agent and got his business. We had no choice we were independent contractors. I left in 1987 11 years after I started and have been an independent agent since. In the days of the old company [ Bob Koch, Dale Mathwick ] it was a different company though. American Family has grown by moving into other states though they have really in a lot of ways hurt Agents who were dedicated and loyal .Some one has to sell the products and the American Family training is the best!

  16. Torpedo says:

    Gene… companies reserve the right to cancel you for having 3 claims in a short period. That’s how insurance works… you file your rules with the state and you cannot deviate from them in most cases.

    Despite your (insert x number of years) of patronage regulators require insurance companies to treat a customer of 30 minutes the same as a customer of 30 years.

    All your complaints will do is bog down your agent (who had no say in your cancellation) with busy work
    And not change a single thing.

    Enjoy your crusade… it will end up like the real crusades.

  17. Karma says:

    In my opinion, American Family Insurance scams its own insurance agents. They profit from terminating their agents who are local small business owners trying to build a business to achieve their dreams. American Family Insurance is all about protecting the dreams of their clients, but at the same time they are crushing the dreams of their agents.

    Here are some facts:

    •American Family Insurance agents are in a contract that can be terminated at any time for any reason.

    •American Family Insurance agents DO NOT own their “book” (the policies) and have no rights to it if American Family chooses to terminate them.

    •When an American Family Insurance agent gets terminated (no matter the reason, if any), all of their policies get “bulk transferred” to another agent(s). American Family doesn’t pay commissions on these bulk transfers for 12 to 23 months.

    •In addition to corporate American Family pocketing the commission for 12 to 23 months, the agent who receives these bulk transferred policies only gets paid 57% of the normal commission rate after that 12 to 23 month period.

    American Family Insurance is literally profiting from terminating agents. Now, you would think that a growing insurance company would be increasing its agency force, but the amount of American Family Insurance agents has actually decreased by close to 25% over the last several years.

    Why would American Family Insurance terminate good agents? They create a reason to terminate once you have build an established book of business. I have heard ridiculous reasons(a claim would not have had to be paid if you did this, your employee called us complaining about you, you were rude on a phone call, you looked at someone wrong, you didn’t come to a meeting, you were late completing a learning module, you have brown hair, you have blue eyes, you have big feet, etc.)

    It doesn’t matter if you are a good agent or a bad agent, the company will profit more and help its bottom line by firing you. Even if you are a great agent, the company is paying you 100% of the commission rate on your policies. They can terminate you, transfer those policies to other agents, not pay any commissions at all for 12 to 23 months (the new agent is forced to service the policies for free) and then only pay 57% of the commission rate after that.

    American Family Insurance pockets 100% of the commission for those 12 to 23 months, then pockets 43% of what should be paid out to its agents.

  18. XAMFAM says:

    American Family Insurance also tends to transfer policies to new agents who are expected to service these new polices for no commission at all. This bogs down the office time to the point where they have trouble going after new business. The District Managers have high expectations levied against these new agents to the point where they give up after 1 to 2 years of service. This starts the transfer of policies all over again with a new time line of the company saving payouts for old business commissions. The practice of replacing the old policies with new policies is highly discouraged and under reviews by all management all of the time. Many areas have less underwriting guidelines and get special premium rates for new business. Since rural business quotes have higher premiums it appears American Family Insurance does not want this business on their books.

    Agents are expected to go to all district meetings so managers can talk about quotas and new expectations, and pit agents against each other. Sometimes these managers point out weaknesses of some agents to their peers. I attended a meeting where a group of midwest agents came and heard the now CEO of AFI say the future of agents in small communities would not have a future.

    These agents also have had numerous changes to their contracts over the last 20 years and always in the company’s best interests and had to accept changes or leave. These same agents also had a non-compete agreement to not go after any of the company’s book of business.

    I think its time for AFI to have a come to Jesus moment and pay desperately for the illegal treatment to the agents past and present. Punitive damages should also exceed the jury approved damages of over a billion dollars.

  19. Melanie says:

    Gene Hawker, I’d like to speak with you. I currently have a lawsuit against American Family Insurance and we are in the discovery phase. Oh, boy what an eye opener. My email is Please contact me. For everyone else: In my personal (educated) opinion: American Family Insurance is a criminal enterprise. My attorney just “killed” the adjuster, Renee Inabinet, during her video taped deposition and that deposition WILL BE MADE PUBLIC sometime after we complete the others. American Family uses a closing strategy they call “The Power of the Checkbook”. Renee was asked about it. Specifically she was asked if you KNEW you owed money on a claim, if you did NOT dispute owing some money on a claim, would you issue payment for the undisputed amount? She avoided answering the question for about 30 minutes. She must have been asked the question in various ways 15-20 times. She refused to answer with a yes or no but kept giving her (IMHO attorney coached) answer “I issue payment at the conclusion of the claim”. In other words, they hold back the amount they do not dispute that they owe in an attempt to extort a better settlement for themselves. Meanwhile medical bills go unpaid and they have the money to use. Also, we will be questioning the RN Leatherman and her interaction with Examworks. A New Jersey judge called the behavior of the doctors, Examworks and insurance companies”A criminal enterprise that should be put under a microscope.” Examworks and CCC (auto valuation company) are both owned by Leonard Green & Partners. We have some evidence on the medical reporting. (Can’t go into it now). IMHO it’s crooked as hell. I’m a doctor (veterinarian) with lots of MD friends and there are just some things you can’t pull over on someone with experience. Going to get real tough on nurse Leatherman and I’ll post that video deposition as well. Dr. J. Michael Powers, I call him, Dirty Dr Powers. Their “expert” is a complete fraud IMHO. Caught him in perjury in his video deposition. Got a few more surprises for him at trial if they use him as their “expert” at that point. His testimony is badly damaged already. For all of the fired agents, anyone who wishes to contact me, please do. Also, I will have some job openings and many of you great people I would love to discuss possible employment. Examworks, we are likely going to add them as defendants. Anyone willing to discuss their policies, I’d love to hear from you. Dirty Dr. Powers is president of the Board of Directors of Bird Technology. (apparently he married into it. His wife is the daughter of the founder. ) Bird technology owns a company called Xcom systems which makes a product called WARP (Wide beam acquisition record and playback) They advertise it as “Hear All Evil” with distinct illuminati symbolism on the ad. Also, one of the partners of Leonard Green &Partners is on the council of foreign relations. It’s just overall a creepy group wrapped up in this business. As for the agents lawsuit, I know an agent that was fired. The firing was a total surprise to her and they came in and took her computers and records. I look at CEO Swindlediddle and all I see is fake. Poor guy. The bigger they are, the harder they fall. Don’t worry, his sins will find him out. Someone mentioned a Florida situation but I can’t say anything about what I heard.

  20. Melanie says:

    Wow, that was fast response. Thanks to all who sent emails. Again here is my email address I’ll share what I can when I can with all. Some information received has to be held back for obvious reasons. This lawsuit against Untrustworthy American Family Insurance may well be a way to get to more information from several entities that needs to have the light of truth shined on it. Anyone wanting to contribute and remain anonymous, your anonymity will be respected. If you have ideas or suggestions, I welcome that as well. Examworks employees or former employees, if you believe a confidentiality agreement prevents you from revealing information,we can evaluate that confidentiality agreement for limits, loopholes etc and go from there. Nobody should be prevented from doing the right thing. Even a contract can’t bind you to keeping secret something illegal. Thanks again.

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