How State Farm Mutual Automobile Insurance Company Started – Top Insurance Blogs

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.

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 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.

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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.

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