Farmers Faces Class-action Lawsuit Over Agent Commission Cuts

Farmers Insurance is facing a proposed class-action lawsuit from a longtime agent who alleges the company sharply reduced his renewal commissions after introducing new monthly sales requirements.

The lawsuit, filed Nov. 9 in Cook County Circuit Court in Illinois, challenges a commission program that ties renewal payments to new-business production.

Agents moved to Tier 1 receive a 1% renewal commission on auto, homeowners and umbrella policies, compared with Tier 2 rates of 4.5%, 5.5% and 3.5%, respectively.

Kenneth More, a Farmers agent for 47 years, says his monthly service commissions fell from an average of $13,707.74 over the previous 12 months to $1,085.46 in October. He alleges Farmers applied lower rates to existing policies without obtaining the written agreement required under his agent contract.

More is seeking to represent other Illinois agents appointed for agencies in the state whose personal auto or homeowners policies were moved to Tier 1 under the program. The proposed class has not been certified by the court.

Farmers Insurance declined to comment on the lawsuit.

Daniel Garzella spent a decade as a captive agent at Farmers Insurance, reaching the top 0.5% of their national force before leaving in 2014 to start the Garzella Group. Drawing on his experience as an agency owner, Garzella said recurring commissions help agencies cover the cost of servicing existing policyholders and running their businesses.

Commission program ties renewal rates to sales

Farmers announced the program in March, setting a monthly production threshold for agents to remain in the higher commission tier.

The changes come amid broader shifts in how major insurers compensate their agents. Earlier this year, State Farm announced an overhaul affecting roughly 19,000 agents, including revised commission schedules that placed greater emphasis on new-business production, along with changes to retirement-related benefits and health insurance coverage.

Agents must generate at least $2,000 in qualifying personal-lines net new-business gross folio premium each month to remain in Tier 2. Missing the threshold in any month of a quarterly measurement period moves an agent to Tier 1, according to the complaint.

A Nov. 3 email from a Farmers district manager included in the complaint explains the consequences of missing the target.

Agents who fall below the $2,000 threshold in any month of a quarter move to Tier 1, become ineligible for variable renewal compensation and receive the reduced base rates for the applicable renewal cycle, the email says.

The lower rates apply to policies that renew while an agent is in Tier 1 for the full policy term, even if the agent later qualifies for Tier 2. The first measurement period began March 19, with the new rates reflected in October commission statements, the complaint says.

More's complaint separately lists $932.65 in October service commissions on Farmers auto, fire and personal-lines umbrella business.

That was about 93% below the $13,174.68 monthly average he received for those lines from June through September.

Tying renewal compensation to new-business production can affect how agency owners balance sales with servicing existing customers, Garzella said. He distinguished between offering additional compensation for meeting production goals and reducing the base commissions agents receive on existing policies.

In his view, keeping the base renewal commission intact while offering additional compensation for meeting sales targets would provide more predictable income.

"I don't have to worry about my renewal commissions going down, meaning I can still operate my business for myself and for the company," Garzella said.

Agent challenges contract terms

More's lawsuit centers on his 1984 agent agreement, which requires changes to the contract to be in writing and signed by the agent and an authorized company representative.

The agreement also provides that commission schedules are established by the companies and apply when a commission transaction takes effect. More argues the Tier 1 program goes beyond a change to a commission schedule by tying renewal rates to production requirements not included in his agreement.

The complaint says More did not sign an amendment accepting the production requirements or reduced renewal rates. Farmers also referred him to a newer agent agreement, but he did not sign that document, according to the complaint.

More contrasts the 2026 program with earlier compensation arrangements that, according to the complaint, allowed agents to earn higher renewal commissions by meeting production targets without reducing their base rates when they missed them.

The lawsuit also raises the effect of lower service commissions on More's Contract Value. The agreement calculates payment in part using service commissions paid on active policies during the six or 12 months before an agent's appointment ends, along with the agent's policy count and years of service.

More alleges he had 1,388 active Farmers policies as of September. He argues the lower commissions could reduce the Contract Value payment when his appointment ends.

The complaint asserts breach of contract and seeks declaratory relief, damages and an injunction. It also includes an alternative claim alleging breach of the implied covenant of good faith and fair dealing.

The case is pending in Cook County Circuit Court. The allegations have not been proven in court.

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