State Farm Insurance: Past & Present

State Farm is the largest home insurer in the United States and the largest property and casualty (P&C) insurance firm in the world, according to the Fortune Global 500. Since 1942, State Farm has insured more cars and homes in the U.S. than any other insurance company. Founded in 1922, State Farm began as a mutual auto insurance company that specialized in auto insurance for farmers, which is where the company got its name. The corporation’s founder believed that farmers deserved lower car insurance rates because they drove less frequently and had fewer losses than city drivers. This concept made the company hugely popular with the farming community, which played a major role in the company’s success. State Farm reported revenues of $61 billion and a net income of $5.46 billion in 2007. The company has grown to include over 17,000 agents, 67,000 employees, and 391 claims offices. In total, the company services over 77 million policies in the U.S. and Canada, 40 million of which are auto insurance policies. In this post, we’ll evaluate State Farm as a home insurer on the criteria of customer satisfaction and financial stability.

Customer Satisfaction

J.D. Power & Associates surveys homeowners across the country every year to assess their level of satisfaction with their home insurer. The policyholders are asked to evaluate their home insurance company on six criteria, ranking the insurer from 1-5, with five being the best. Here is how State Farm fared in the 2008 customer satisfaction survey:

• Overall experience: 4/5
• Policy offerings: 4/5
• Pricing: 3/5
• Billing and payment: 3/5
• Contacting the insurer: 4/5
• Claims: 3/5

Financial Stability

Most insurers that offer homeowner’s policies have struggled in recent years because of catastrophic losses in several parts of the company. According to Fitch Ratings, State Farm’s financial outlook is stable. Though not excellent, a stable financial outlook still puts State Farm ahead of most of its competitors who received negative financial outlook ratings. In terms of financial stability, or what Fitch calls “Insurer Financial Strength (IFS),” State Farm has maintained its rating of AA+. Fitch attributes State Farm’s financial strength to its strong capital position, diversification provided by its life insurance branch, and very productive career agency distribution team. On the down side, State Farm continues to struggle with consistency in underwriting gains. In the past 11 years, State Farm has only reported four underwriting gains.