You cannot run a world class economy on the backs of service industry workers

There was a time when 21st Century Insurance was a brand with meaning. It stood for quality - the best service at the best rates - and I felt lucky to qualify for this insurance.

Now it is an illustration of how corporate mergers and acquisitions ruin companies, decrease competitiveness and harm the worker and the consumer. The only beneficiaries are a very few in top management who have employment contracts that guarantee their bonuses based on the price of the stock and the success of the M&A activity, the M&A investment bankers and lawyers, a few major stockholders who understand what is happening well enough to perfectly time stock purchases and sales. And that is it.

The consumers have definitely not benefited. The employees of the original 21st Century Insurance and AIG Marketing have not benefited. The economy has not benefited.

There have been many players on both sides who have played very badly in terms of being decent human beings. Layoffs on both coasts have been decided out of fear, anger, misplaced loyalty and all the other lowest common denominators of behavior that intensely insecure environments bring out.

But it is the system that is broken, not just a few bad apples that have ruined the house.

Farmers is in the process of outsourcing every aspect of information technology to foreign countries. The name, nature and existence of foreign countries is not the problem. The problem is that the overall system only rewards short term profits, and punishes long term planning. As many economists have explained, you cannot run a world class economy on the backs of service industry workers. McDonald's will need to hire locally. Plumbers will need to live locally. The concept that economic growth can be sustained in such an environment is fundamentally unsound. One doesn't need a degree in micro economics to understand why.

Farmers is strategically shutting down the half of 21st Century Insurance that actually has the capability to perform direct marketing to consumers and support the type of 24/7 high quality operation that can retain direct consumers. Farmers is retaining the half of 21st Century Insurance, the former AIG Marketing subsidiary, which is able to wholesale auto loans to affinity groups and additionally, outsources much of the policy support operations to retain the customers to the affinity groups.

One cannot assume that Farmers is devoid of intelligent life. Which means that Farmers plans to eliminate the direct marketing of auto loans to consumers, and move the book of business to their agents. This is logical as Farmers risks alienating the group that brings in 100% of their business currently, the agents.

As far as information technology goes, Farmers has quite openly announced that all internal jobs will be outsourced, predominantly overseas. There is no doubt that is the future for 21st Century Insurance also. The work of the former IT teams on the west coast have already been transferred overseas. And the plans to move the IT work on the east coast overseas are already negotiated. Several systems have already started the work to transfer the system to the Farmers equivalents, although not everyone is aware of this fact.

Additionally, the fact that Farmers was surprised to learn that the call center support in California are all highly trained and licensed insurance agents, indicates that it is no accident that these competitors to the Farmers agents are being eliminated. Internal studies have found that the regional differences within the country make for frustrated and unhappy customers when people are dealing with complex products such as insurance and cannot receive help in their time zone.

There are no efforts going on to retain business at 21st Century Insurance. Between the recent rate increases, the plans to change to a new rating system that will further raise rates and the profound focus on decreasing costs at the expense of increasing business indicate a company that is at the top both aware of and helping to plan its own decline.

One of the many losses to the public of the M&A activities of oversized corporations is that there is no longer any transparency. It was easy to see the motivation of previous CEO's of 21st Century Insurance through SEC filings. The fact that similar motivations and contracts may exist for current top management will never become public because deals within the company do not fall under the SEC controls. There may very well be an enormous payout to top 21st Century Insurance management for eliminating the book of business for direct customers, but only a handful of people will ever be privvy to the deals.

Anyone left at 21st Century Insurance in any location who does not possess inside knowledge of the arrangements and monetary motivations being offered at the top should not be surprised at the upcoming, and seemingly illogical cuts and changes in 2010 and 2011. The end result will not be the growth of 21st Century Insurance, nor will it be a transformation of Farmers to a direct marketing firm.

Again, a few people will get very, very rich.

And the majority of consumers and workers who support the backbone of the economy will suffer.