State Farm Auto Insurance Review
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UPDATED: Jul 8, 2021
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There are probably few Americans around today who, if challenged, couldn’t recite the State Farm Insurance slogan or sing the catchy nine-note refrain. “Like a good neighbor, State Farm is there.”
State Farm has been the largest auto insurer in the United States since 1942, insuring one out of every five cars on the road today.
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State Farm Insurance is comprised of a group of more than two dozen insurance and financial services companies currently operating in the United States and Canada. The main company is State Farm Mutual Automobile Insurance Company headquartered in Bloomington, Illinois.
State Farm Mutual owns and operates all the other State Farm subsidiaries.
State Farm History
State Farm began 90 years ago, in 1922, when retired farmer George Mecherle started a mutual company that would provide auto insurance especially for farmers.
As with many mutual insurance providers of the day, the fledgling State Farm would be owned by the policyholders themselves.
Later, State Farm would expand into homeowner’s and life insurance products as well as financial services and banking. State Farm Life was founded in 1929. In 1935, State Farm Fire and Casualty was organized to provide fire insurance for homeowners throughout the United States and Canada.
State Farm Bank was chartered in the late 1990s to provide financial services products for its many thousands of insurance customers. State Farm Bank is considered a non-traditional bank as it has no branch offices. Banking services are provided through State Farm’s existing network of insurance offices and agents across the country.
While everyone knows the famous State Farm commercial jingle, most don’t recognize it as an original composition penned in 1971 by legendary singer and songwriter Barry Manilow.
More recently, the alternative rock band Weezer released a cover of the famous tune in 2011.
According to the State Farm website, the State Farm Group of companies employs more than 68,000 dedicated insurance professionals. State Farm’s more than 18 thousand agents provide service and support for more than 80 million insurance policies in the United States and Canada.
More than half of State Farm’s policies, in excess of 42 million, are written for automobiles. State Farm Bank boasts more than two million active account holders. State Farm owners and policyholders continue to reap the rewards of this hugely successful insurance firm. In 2007, State Farm paid out in excess of $1.25 billion in dividends!
One of the most famous emblems in the world today, the State Farm tri-oval logo was first created in the mid-1940s and update in 1953. The red and white logo remained in place for nearly 50 years until it was updated in 2011.
State Farm: One of the Biggest and the Best
According to A.M. Best, the State Farm Group is the largest insurer in the United States. In 2011, State Farm wrote more than twice as much insurance business as its closest competitor, Allstate Insurance.
In 2011, State Farm’s premium volume topped $50 million dollars, while Allstate wrote only $24.8 million in premiums during the whole of 2011.
While State Farm’s rank on the Fortune 500 list of companies slipped six places in 2012, the insurance giant, at 43rd place on the list, is still one of the 50 largest companies in the United States.
Current Chief Executive Officer Edward Rust Jr., attributes State Farm’s recent loss of revenues to a very tempestuous 2011. State Farm paid out far more in claims than in previous years, showing an underwriting loss of $4.5 billion, one-third higher than in 2010.
These losses came as a result of a handful of catastrophes that proved to be among the largest in U.S. history.
Even so, company officials maintain, State Farm did manage to increase its total revenues in 2011 to a record $64.3 billion, up $1.1 billion from 2010. Net profits for the year fell to $845 million.
State Farm is also growing its domestic labor force, having recently announced it will add 3,000 new jobs in the coming year. Ten percent of these jobs will be administrative positions at the Bloomington, IL corporate headquarters.
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State Farm Financial Strength and Security
International rating company A.M. Best provides credit ratings, financial data, industry news, and other related products to the global insurance industry.
The most recent A.M. Best financial strength ratings for State Farm Insurance published this past May affirm the company’s positive long term financial outlook.
The State Farm Group was judged to be Superior and given Best’s A++ rating for financial strength and aa+ as a credit issuer rating.
The overall financial outlook for the State Farm companies is stable with one exception. State Farm Indemnity Company is the sole subsidiary listed with a negative outlook.
State Farm’s excellent ratings are supported by what Best calls the company’s “superior business profile,” favorable earnings ratio, and strong capitalization (adjusted for risk). It is important to note that State Farm is the largest personal lines insurance group in the U.S.
These statistics are based on the premiums written and policyholders’ surplus capital.
State Farm is also one of the top five auto insurance providers in the Canadian provinces of Alberta, New Brunswick, and Ontario. While automobile, homeowners, and property and casualty insurance are State Farm’s principal lines of business, the company also engages profitably in commercial insurances, as well as other financial services products and programs.
This allows State Farm to bundle several insurance products at a time, which promotes greater customer loyalty as well as profitability. See below for a discussion of State Farm’s newest auto insurance pay-as-you-go products.
State Farm Weaknesses
The financial strengths listed above are partially offset by the company’s more recent lack of profitability.
State Farm also suffers, as do many of its competitors, by high investment leveraging with continuing low interest rates.
As mentioned above, at least five devastating continental weather events in the last year severely affected State Farm’s profitability.
As is the case with other consumer costs, the adjusted amounts to settle auto insurance claims have skyrocketed, due in large part to rising medical care costs. Increased competition in the auto insurance arena as well as highly competitive pricing and aggressive discounting have also cut sharply into State Farm’s recent profits.
Management is making a concerted effort to increase the value of State Farm’s investment portfolio, as well as to improve upon its already significant market share, with stronger customer retention programs and a higher commitment to excellent customer service.
State Farm Market Share
Focus Magazine, published by the Association of Independent Insurance Agents, published its list in May of the top 10 auto insurers in the U.S. for 2012. Not surprisingly, State Farm was at the top of this list with an overall market share of 18.2%.
According to this study, State Farm insures slightly less than one out of every five automobiles in the nation, representing almost $30 billion in direct premium business. Allstate Insurance finished a distant second with 10.4% of the auto insurance market or $17 billion in premium business.
The 2012 American Customer Satisfaction Index shows State Farm at the top of the list for property and casualty insurance providers, with an 82% satisfaction rate, compared with a baseline for the industry of 83%. State Farm has been at the top of this list since 2007.
Other companies listed are Geico, Farmers, Progressive, and Allstate.
In the most recent J.D. Power Survey, State Farm was ranked number 7 out of the 24 companies included in the study.
State Farm earned high marks for its policy offerings and the efficiency of its local agents. State Farm was not rated for its website or call center representatives.
State Farm Enters a New Market
Recent State Farm ads tout potential savings for auto policyholders of as much as 40%, as the company rolls out its new pay-as-you-go, Drive Safe and Save program. According to the AOL Daily Finance website, the new programs offers big potential savings to policyholders.
Pay-as-you-go plans are based on the premise that the less you drive, the lower your car insurance premiums. Drivers either attach a monitoring device to their vehicles or otherwise report on their mileage and driving habits directly to their insurance carrier.
Current State Farm policyholders receive a 5% discount just for signing up. In California, motorists can just report their mileage, though in other areas motorists are required to have OnStar devices installed in their vehicles for this purpose.
Initially, drivers in only five states were eligible for the new program: Ohio, California, Illinois, Colorado, and Texas.
In 2012, State Farm expanded its Drive Safe & Save program to nine additional states including Florida, according to reports in the online edition of the Florida Sun Sentinel.
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