State Farm: Innovation from the Start
State Farm, a property and casualty insurer headquartered in Bloomington, IL is the U.S.’s number one auto and home insurer having been built on solid customer service and continual innovation. Building on its history of innovation and constant effort to improve customer service and satisfaction the company recently launched a smartphone application to help its customers avoid distracted driving.
State Farm vital statistics
- 80 million policies and accounts in force
- 68,000 employees
- 17,000 agents
- largest auto insurer in the U.S. ( 1 in 5 cars on the road are insured by State Farm)
- largest homeowner’s insurer with $14.7 billion in premium and 21% market share in 2009
Background
State Farm, was founded in 1922 by retired farmer and insurance salesman George Jacob “G.J.” Mecherle. State farm now insures more cars and homes than any other insurer in the U.S., and is one of the leading insurers in Canada. A mutual company owned by its policyholders, State Farm is currently ranked number 34 on the Fortune 500 list of largest companies. Originally a single line auto insurance company, State Farm now offers nearly 100 products and services, in five different lines of business, and handles nearly 35,000 claims per day.
State Farm innovations
Mecherle decided it was possible to form a mutual insurance company that catered to rural and small town drivers who, as a group, had fewer accidents and cost insurers less in claim payments. Because claim costs for this group tended to be lower, premiums could be lower, and State Farm undercut its competitor's rates significantly.
Tying insurance rates to risk level established was an industry innovation introduced by State Farm. In fact, according to The Wall Street Journal, "Until the late 1950s, the company's competitors were clinging to their traditional insurance rates while State Farm was boasting in ads of savings of 'up to 40%' on its auto insurance."
State Farm also pioneered the practice of charging its customers an initial lifetime membership fee to cover the cost of processing new policyholders and the agent's commission. This one-time, nonrefundable fee allowed State Farm to keep the policy premium low, and it generated essential income that fueled the company's early growth.
Another innovation that became a key element in State Farm's success was its unique agent force. Mecherle tapped into the network of farmer's mutual insurance companies formed to protect members against fire or lightning damage, as well as farm bureaus and other local institutions established throughout various regions. His first agents were men who were well placed in the community, such as the officials from the local farm bureau or sometimes an area's school principal.
The strategies worked so well that State Farm outgrew its offices three times in the first seven years. The home-office staff grew from five people in 1925 to 183 in 1927. Today State Farm employs more than 68,000.
The company's growth was not just a matter of volume; State Farm continually expanded the services it offered. In January 1929, the company formed a subsidiary, State Farm Life Insurance Company, which, like its parent company, has flourished.
And in 1935, State Farm diversified again with the formation of the subsidiary State Farm Fire Insurance Company, which in 1950 merged with State Farm Casualty Insurance Company to form State Farm Fire and Casualty Company, which quickly became the largest insurer of homes and pleasure boats in the nation.
Still innovating, looking to the future
Times have changed dramatically since 1922 but State Farm is continuing to innovate to improve its services and the lives of its customers. On Monday, August 23rd, State Farm Insurance Company released the insurance industry’s first Android widget aimed at combating the problem of distracted driving. The new “On the Move” widget allows Android smartphone users to compose and preload customized messages that can be sent as automated responses to incoming text messages. With the service, instead of reading and responding to text messages while driving or otherwise occupied, smartphone users can activate the service and let the widget respond for them. The service is free to anyone with an Android smartphone. “It is our hope that this widget will prevent crashes and save lives,” said Laurette Stiles,Strategic Resources vice president at State Farm.
Corporate culture
State Farm takes its leadership role in the industry very seriously by advocating strongly for improved auto safety efforts such as the effort to avoid distracted driving. In the past State Farm has successfully helped pass a number of seat belt laws and continues to fight for seat belt and teen driver safety today.
These are just a few examples of State Farm’s history of anticipating customer needs and exceeding expectations.
Photo courtesy of Getty Images
