How the multi-billion dollar state farm group began..
With its corporate headquarters in Bloomington, Illinois, State Farm is a sizable organization that includes insurance and financial services businesses around the country. The group’s primary line of business is State Farm Mutual Automobile Insurance Company, a mutual insurance company that also owns the other State Farm businesses.
In terms of the largest American companies by total revenue, State Farm came in at number 36 on the 2018 Fortune 500 list.
Exclusive agents, commonly referred to as captive agents, are the main source of insurance sales for State Farm. State Farm insurance may only be sold by State Farm agents, and only State Farm products may be sold by its agents.
How George Mecherle Modified the Automobile Insurance Industry
George J. Mecherle, a retired farmer, created State Farm in 1922 as a cooperative vehicle insurance firm owned by its clients. The company first focused on vehicle insurance for farmers before extending its offerings to include other insurance products including homes and life insurance, followed by banking and financial services.
George introduced new insight to the vehicle insurance industry and, with the assistance of a few select individuals, started implementing his own ideas, starting with the creation of a mutual automotive insurance firm.
A mutual business reduces premium costs and will refund a portion of the firm’s surplus to policyholders during times when claims are lower and income is greater, in contrast to a capital stock corporation that pays dividends.
The insurance business at the time established its own prices and did not categorize drivers into groups based on their region, driving history, or any other risk factors. Mecherle came to the conclusion that it was feasible to establish a mutual insurance firm that specialized to motorists in rural and small towns who, together, experienced fewer accidents and incurred lower claim costs.
State Farm drastically reduced its competitor’s prices because claim expenses for this group often tended to be lower.
State Farm’s reputation as a clever insurer that passed savings on to the client was created by this innovation of connecting insurance costs to risk level.
State Farm’s Early Sales Strategy
The individuals who served as his first agents were prominent members of the community, such as agriculture bureau representatives or perhaps a district’s principal. In comparison to their peers who sold insurance full-time for other insurance firms, State Farm’s part-time agents got lower commissions.However, State Farm agents were able to profit from high sales volume by providing a population in need with a quality, reasonable insurance product.
Additionally, the majority of the paperwork was handled by State Farm’s headquarters office in Bloomington, freeing up the agents’ time to focus on selling.
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State Farm’s offices had to be expanded three times in the first seven years as a result of the strategy’s success. Five persons worked in the home office in 1925; 183 did so in 1927. Early in the 1940s, the company’s activities were so dispersed that some employees chose to wear roller skates to hasten the delivery of interoffice mail.
Many of State Farm’s policies were attractive because they benefitted both the firm and the client.
State Farm’s First Acquisition in Its 98-Year History
To grow their property and casualty insurance business, State Farm management struck an agreement to buy GAINSCO on September 16, 2020 for $400 million in cash.
A Dallas-based vehicle insurance provider is called GAINSCO. The State Farm Mutual Automobile Insurance Company is now the biggest property and liability insurance provider in the country as a result of this purchase.
Gainsco Inc. was dealt with by Hunton Andrews Kurth LLP in this transaction. Partners Steve Leshin and Steven Haas are in charge of the Hunton Andrews Kurth team that is defending GAINSCO. They are assisted by M&A associates Charles Brewer and Luis Andrade, tax partner Robert McNamara, employee benefits partner Scott Austin, labor and employment partner Alan Marcuis, and antitrust partner Kevin Hahm.
State Farm’s Expansion in Recent Years
State Farm has 19,000 agents and 70,000 employees as of December 2017. According to statistics from February 2014, the company services 80 million insurance policies in the US and Canada, of which more than 44 million are for autos, 27 million are for fire, 7 million are for life, and more than 2 million are for bank accounts.
Michael Tipsord serves as President and CEO of State Farm Fire and Casualty Company, State Farm Life Insurance Company, and other significant State Farm affiliates in addition to serving as Chairman and CEO of State Farm Mutual Automobile Insurance Company.
Desjardins Group, which is still using the State Farm name, purchased the company’s business in Canada in 2014. On January 1, 2015, Desjardins Group assumed underwriting responsibility for Canadian products. Up until 2018, agents and marketers utilized the State Farm name. Desjardins Insurance was formally rebranded as State Farm Canada in 2018 by Desjardins Insurance Agents. By December 31 of 2019, the entire changeover will be finished.
