State Farm, together with RenaissanceRe, created reinsurance firm and Da Vinci based in Bermuda. The reinsurance firm services both State Farm subsidiaries and other insurance firms. ””’At present, the insurance sub sector is the most relevant to the operations of State Farm Insurance Companies. In the new future, however, projections indicate that banking services and securities services will assume growing relevance for State Farm Companies. Insurers also are moving into e-marketing. This approach is increasingly attractive to consumers.
Thus, the move is good for the industry. Some insurers, such as State Farm, also are using electronic networks as the technological basis for the delivery of banking and investment services. Most insurers, however, are lagging in the use of electronic networks to interact with customers. A strong opportunity for State Farm is in the selling of insurance, banking, and securities products over the Internet. The company is ahead of most other insurance companies in this effort. Reinsurance is another opportunity for the company. Weaknesses
Insurers generally are moving towards the use of credit checks as another tool to apply in rate setting for individual customers. This practice hit low income and moderate-income policyholders especially hard. While this approach is a sure way to increase rates, it also is a tactic that will increase resentment among consumers and cause state insurance regulating agencies to place the industry under closer scrutiny. Industries such as insurance never seem to learn from past mistakes. The major weakness at State Farm in the contemporary period is the relationship between the company and its sales force.
State Farm earns higher profits from repeat business than from new business. Since 1998, the company has been reducing new business commissions and base pay in favor of incentives for both customer retention and the cross selling of State Farm products. This action by the company created resentment among members of the company’s sales force. Problems related to mold related claims against homeowners policies in California and Texas also led to State Farm pulling out of the homeowners insurance markets in those states.
Threats In early 2009, State Farm’s Florida subsidiary, the state’s largest insurer, got out of the homeowner’s insurance business in Florida after state regulators refused to approve a 47% increase in insurance premiums. State Farm said that, in Florida, it had paid out $1. 21 in claims for every dollar in premiums since 2000. Several other home insurers have pulled out of Florida as well; many homeowners are now using the Citizens Property Insurance Corp. run by the state government. 10] State Farm’s top automobile insurance competitors, based on premium written, include Allstate, Progressive, GEICO, Zurich, Nationwide, USAA, Liberty Mutual, American International Group, and American Family Insurance Group.  Negative environmental factors affected some segments of the insurance sub sector in recent years. Homeowners’ insurers were hit hard by hurricane damage claims and by mold claims. Automobile insurers were hard hit by both rising accident rates and increasing repair costs. Efforts in some states to control prices increases for several forms of insurance had negative effects on the operations of insurers.
The terrorist attacks in New York City and Washington had serious implications for both property insurers and life insurers. ””’Plummeting profitability in 2001 marked the fourth consecutive year of similar performance in the insurance sub-sector of the financial services sector since the sub-sector historically high profitability level attained in 1997. Underwriting losses in 2000 and 2001 established those years as two of the three most devastating years for the insurance sub-sector. Only the profitability performance in 1992 (Hurricane Andrew) was worse for the insurance sub sector.
Projections indicate profitability improvements for the sub-sector over the coming five years. Improvements, however, will be gradual, according to projections. Both rates and revenues are increasing, however, early in 2002. State Farm Insurance has rocky relationships with several state insurance regulating agencies. The failure of the company to deal effectively with regulators led to a company decision to withdraw from the automobile insurance market in New Jersey. The company cannot afford for similar outcomes to occur in other states. The company also is beset with multiple class action lawsuits.
Potentially the most damaging is the finding of a state appellate court in Illinois that the company’s use of after-market parts in the repair on insured automobiles violates the insurance contracts between the company and its customers. Should this ruling stand and extend to other states, it will affect all automobile insurers; however, State Farm is the direct target of the action. State Farm settled a class-action suit in Arizona stemming fro the company’s refusal to pay uninsured motorist policy claims where insured drivers held multiple policies. Strengths