By State Farm is a large group of insurance and financial services companies throughout the United States with corporate headquarters in Bloomington, Illinois. The group’s main business is State Farm Mutual Automobile Insurance Company, a mutual insurance firm that also owns the other State Farm companies.
State Farm ranked No. 36 on the 2018 Fortune 500 list of the largest United States corporations by total revenue
State Farm relies on exclusive agents (also known as captive agents) to sell insurance. Only State Farm agents can sell State Farm insurance, and their agents can sell only State Farm products. If you’re looking to purchase an auto insurance cover, you may want to check out this top 5 ways to save money on your car insurance.
How George Mecherle Changed the Auto Insurance Business
State Farm was founded in 1922 by retired farmer George J. Mecherle as a mutual automobile insurance company owned by its policyholders. The firm specialized in auto insurance for farmers and later expanded services into other types of insurance, such as homeowners and life insurance, and then to banking and financial services.
George brought to the auto insurance business a fresh perspective and, with the help of a few choice people, began instituting his own ideas, which began with establishing a mutual automobile insurance company.
Unlike a capital stock company, which distributes dividends, a mutual company adjusts premium costs and will refund a portion of the company’s surplus to policyholders during periods when claims are lower and income higher.
RELATED: How Prudential Financial Inc Was Built Into a Billion Dollar Insurance Company
At the time, the insurance industry set its own rates and did not distinguish between groups of drivers based on location, driving record, or any other risk criteria. 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.
This innovation of tying insurance rates to risk level established State Farm’s
legacy as a smart insurer that passed savings on to the customer.
State Farm’s Early Sales Strategy
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. These agents worked part-time for State Farm and received less commission than their counterparts selling insurance full-time for other insurance companies.
Nevertheless, by selling a sound, affordable insurance package to a population that needed it, State Farm agents were able to make their money on sales volume. Furthermore, State Farm’s central office in Bloomington handled most of the paperwork, which freed up its agents to spend the bulk of their time selling.
RELATED: How to Grow Your Classic Car Insurance Company the Easy Way
The strategy 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. The company reached a point in the early 1940s where its operations had become so scattered, some employees wore roller skates to speed delivery of interoffice mail.
The beauty of many of State Farm’s policies was that they benefited both company and customer.
State Farm’s Expansion in Recent Years
As of December 2017, State Farm had 70,000 employees and 19,000 agents. February 2014 figures show the group servicing 80 million policies in the United States and Canada, of which over 44,000,000 are for automobiles, 27,000,000 are for fire, 7,000,000 for life, and more than 2 million bank accounts.
Michael Tipsord is Chairman and CEO of State Farm Mutual Automobile Insurance Company, and president and chief executive officer of State Farm Fire and Casualty Company, State Farm Life Insurance Company, and other principal State Farm affiliates.
In 2014, the company sold its operations in Canada to Desjardins Group, which is continuing to use the State Farm name. Canadian policies were transferred to be underwritten by Desjardins Group on January 1, 2015. The State Farm brand continued to be used for agents and marketing until 2018. In 2018, State Farm Canada was officially re-branded to Desjardins Insurance through Desjardins Insurance Agents. The whole transition will be completed by December 31 in 2019.
State Farm’s First Acquisition in Its 98-Year History
On September 16, 2020 State Farm management signed an agreement to purchase GAINSCO for the sum of $400 million in cash in order to expand their property and casualty insurance business.
GAINSCO is an auto insurance company based in Dallas. This acquisition has positioned the State Farm Mutual Automobile Insurance Company as the largest property and casualty insurance company in the United States.
Hunton Andrews Kurth LLP was the company that represented Gainsco Inc. on this transaction. The Hunton Andrews Kurth team representing GAINSCO is led by partners Steve Leshin and Steven Haas, with support from 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.
