State Farm Mutual Automobile Insurance Company

One State Farm Plaza
Bloomington, Illinois 61710
U.S.A.
Telephone: (309) 766-2311
Fax: (309) 766-3621
Web site: http://www.statefarm.com

Mutual Company
Incorporated: 1922
Employees: 79,300
Total Assets: $71 billion (2001)
NAIC: 524126 Direct Property and Casualty Insurance Carriers; 524113 Direct Life Insurance Carriers

State Farm Mutual Automobile Insurance Company, the cornerstone in the State Farm Insurance Companies group, has been the number one automobile insurer in the United States since 1942. Approximately one out of five cars in the United States is insured through State Farm. Through a network of over 16,700 agents, the company and its subsidiaries handle 71 million auto, home, life, and health insurance policies. The State Farm group also offers its customers mutual funds and a variety of banking services, including deposit accounts, CDs, and mortgages via the Internet and telephone.

George Mecherle Enters the Auto Insurance Business: 1920s

State Farm began in 1922 as one man’s plan to offer low-cost automobile insurance to the farmers of Illinois: hence the name State Farm Mutual Automobile Insurance Company. State Farm’s early success and strong standing in a volatile marketplace is surely due to the vision of the company’s founder, George Mecherle. Mercherle’s beginnings are as modest as the company’s success is extraordinary. He was a farmer until he was 40, when his wife’s failing health forced them to leave their farm and Mecherle started selling insurance with a Bloomington, Illinois, company. Running his own farm had shaped Mecherle into a man who was constantly looking to innovate and improve conditions. When, in his characteristic outspoken, straightforward manner, he told his boss at the insurance company some of his ideas for improving the business, the boss said, “Well George, if you don’t like the way we run things, go start your own company.”

Mecherle did just that. He 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. 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. The Wall Street Journal observed,“ Until the late 1950s, the company’s competitors were clinging to their traditional insurance rates while State Farm was boasting in ads of savings of ’up to 40%’on its auto insurance.”

State Farm was also a pioneer in the practice of charging its customers an initial lifetime membership fee to cover the cost of processing new policyholders and the agent’s commission. This one-time, nonrefundable fee allowed State Farm to keep the policy premium low, and it generated essential income that fueled the company’s early growth.

Aside from its independent approach to rates, another key element in State Farm’s success was its unique agent force. Normally, insurance agents represented a number of different companies, took large commissions, and shouldered a great deal of the paperwork involved in writing and maintaining policies. Mecherle simply tapped into the network of farmer’s mutual insurance companies formed to protect members against fire or lightning damage, as well as farm bureaus and other local institutions established throughout various regions. 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.

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. For instance, State Farm followed other companies in offering semiannual—and later monthly—policy payments, which customers found easier to pay and, at the same time, led to accounting advantages for State Farm. State Farm also streamlined operations from the start, simply collecting premiums for a renewed policy on a vehicle, whereas most automobile insurers rewrote the policy each year.

Before long, the company was turning away unsolicited applications for insurance that were coming from prospective customers in urban areas. In 1926, a subsidiary, the City and Village Automobile Insurance Company, was formed. However, because the company lacked economy of scale, it was soon absorbed by State Farm Mutual, which rewrote its bylaws to allow for the extension of services to those urban customers not originally eligible for State Farm insurance.

Growth and Diversification: 1930s-40s

In 1928, just six years after the company’s founder told a banker in Bloomington, ’Tve never had an account here. ...I’ve never cashed a check here, as far as I know. I’ve never tried to borrow your money. But I’m going to start a little business in this town and, by golly, you’re going to lend me the money I need to get started,”the company opened its first branch office, in Berkeley, California, and annual income surpassed $1 million. In 1929, the company moved into its own eight-story building, to which it added five floors in 1934. In 1939, State Farm built another eight-story building next door, to which it also added five floors in 1948. In the early 1970s, the company built its present headquarters at a site on the eastern edge of Bloomington.

The company’s growth was not just a matter of volume; State Farm continually expanded the services it offered. In January 1929, the company formed a subsidiary, State Farm Life Insurance Company, which, like its parent company, has flourished.

During the banking holiday that brought in the New Deal era, State Farm Mutual operated at a loss, but it continued to operate at a time when many insurance companies folded. The National Recovery Act eliminated discounts on auto parts, and increased wages under this act sent repair costs higher. State Farm tightened in its belt, dropped coverage in its highest risk areas, and continued to attract and satisfy customers.

In 1935, it diversified again with the formation of the subsidiary State Farm Fire Insurance Company, which in 1950 merged with State Farm Casualty Insurance Company to form State Farm Fire and Casualty Company, which quickly became the largest insurer of homes and pleasure boats in the nation. In 1937, George Mecherle became chairman of the board of directors. Ramond Mecherle, who had been with the company for 13 years, was elected president, and G. Ermond Mecherle, who had been acting as director of personnel, was elected secretary.

Under G. Ermond Mecherle’s direction, State Farm established a progressive program that addressed employee welfare on several levels, including financial, physical, and educational. He also worked to improve morale. Posture chairs made their appearance as early as 1935.

In 1939, State Farm launched a campaign to reach one million automobile insurance policyholders. The “One million or more by 44” effort relied heavily on advertising, and the company’s advertising budget, which amounted to only $16.25 in 1923, swelled to an astonishing $202,000 in 1941.

With the advent of World War II in 1941, car production for civilian use came to a standstill, gasoline was rationed, and rubber for new tires became largely unavailable. State Farm wrote only 607 fewer policies than the year before, which had been a record-breaking year of growth for the industry in general and State Farm in particular. State Farm kept growing, pulling further ahead of its competitors, both mutual and stock. In March of 1944, in spite of the war, State Farm had one million auto insurance policies in effect. This represented a 110 percent increase in five-and-a-half years.

Company Perspectives:

State Farm’s mission is to help people manage the risks of everyday life, recover from the unexpected, and realize their dreams. We are people who make it our business to be like a good neighbor, who built a premier company by selling and keeping promises through our marketing partnership, who bring diverse talents and experiences to our work of serving the State Farm customer. Our success is built on a foundation of shared values —quality service and relationships, mutual trust, integrity, and financial strength. Our vision for the future is to be the customer’s first and best choice in the products and services we provide. We will continue to be the leader in the insurance industry and we will become a leader in the financial services arena. Our customers’needs will determine our path. Our values will guide us.

Postwar Difficulties

The postwar years were chaotic and fraught with serious problems for the auto insurance industry. There was a shortage of dependable, well-educated personnel, as well as a severe lack of sufficient office equipment and office space. This was at a time when Americans were rediscovering their automobiles, driving them farther, and driving them faster. Claims were flooding into insurance companies, their numbers rising 41 percent in 1945, and 57 percent in 1946. The total underwriting loss for the industry during 1945 and 1946 was estimated at $300 million, and for a few months in 1946 State Farm was losing money at a rate of $1 million a month.

It took State Farm several years to regroup and effectively meet the demands of its customers. During this period, State Farm established stricter criteria for accepting new policyholders, setting an age limit on cars and not accepting those policyholders who were very young or very old. State Farm also worked to educate the public in a national automobile-safety campaign. As part of a restructuring plan, branch offices were established in 1947, the first of which opened in Saint Paul, Minnesota, and a committee was appointed to restructure the overcrowded and disorganized Bloomington home office.

George Mecherle exhibited his characteristic leadership during this difficult time. According to Karl Schriftgiesser, author of the The Farmer From Mema, Mecherle told the organizational committee, “Let us assume ... that we are about to start all over, build a new company …. Remember there is nothing sacred here, nothing that can’t be done away with. Be as rough as you want. The only thing I insist upon is that you do not depart from the basic principles on which State Farm has been built—the membership plan, the continuous policy, 6-months premium, and the happiness of our agency force.”

The committee restructured the company headquarters along geographical lines—with each department representing a region of the country and functioning independently on a day-today basis—which scaled down and refined operations significantly. When George Mecherle died in 1951, State Farm had over two million auto insurance policies in effect.

Expansion and New Offerings: 1960s-70s

Due to special requirements in state laws, State Farm Life Insurance was unable to do business in New York, Connecticut, and Wisconsin, so to serve these states the subsidiary State Farm Life and Accident Assurance Company was incorporated in 1961. The next year, State Farm General Insurance Company was established to protect low-value property.

In 1962, State Farm offered auto insurance at a 20 percent savings to students who were doing well in school, based on the hope that if they were home studying for their good grades, they would be less likely to be out driving cars. In 1963, the company instituted monthly premium payments, and agents were authorized to make on-the-spot auto claim payments of up to $250, which improved customer service considerably. In 1965, State Farm began offering limited health insurance. The policy offered $15 for every day a policyholder spent in the hospital. This payment was touted as a possible supplement to other health insurance a person may have, perhaps to help pay for a babysitter or a housekeeper while a mother was away from home.

In 1966, an advanced computer system was installed, linking regional offices to headquarters in Bloomington. This investment, and the attention State Farm was paying to customer service earned State Farm praise from consumer groups in 1970.

There were periods when State Farm experienced large underwriting losses, that is, when payments on claims were much higher than income provided by premiums. Through smart investing and the ability to mobilize to cut costs during loss years, however, State Farm has stayed on top. A classic example is underwriting in 1971, in which State Farm’s profit was $263 million, compared to $38 million in 1970. State Farm made headlines with its $30 million refund to policyholders as a result of high earnings in 1971.

By this time, the company was known for its independent stands on controversial issues: company executives felt that the insurance industry should not be exempt from federal antitrust laws, as it had been for decades. State Farm also supported federal no-fault-insurance legislation. There was also criticism that the company discriminated against minorities. It divided urban areas up into different risk zones and charged higher rates to those in higher risk zones, which tended to be in the inner city. The company had also been challenged in a number of court cases in the late 1970s and in the 1980s with allegations of sex and racial discrimination in its hiring of agents. To criticism that State Farm has long been “creaming off” the best drivers, Vice-President Thomas C. Morrill once responded, “Every underwriter tries to screen risks, but this isn’t to say we go only after the cream. We just try to exclude the dregs.”

Key Dates:

1922:

George Mecherle establishes the State Farm Mutual Automobile Insurance Co. to offer low-cost auto insurance to Illinois farmers.

1928:

The company’s income surpasses $1 million; the first branch office is opened in Berkeley, California.

1929:

State Farm Life Insurance Company is formed as a subsidiary.

1935:

The company launches State Farm Fire Insurance Company.

1944:

The company has one million auto insurance policies in effect.

1950:

State Farm Fire merges with State Farm Casualty.

1961:

State Farm Life and Accident Assurance Company is incorporated to serve New York, Connecticut, and Wisconsin.

1989:

Claim payments reach $600 million due to Hurricane Hugo in South Carolina and earthquake damage in California.

1999:

State Farm is forced to pay $1.2 billion to policyholders in an auto replacement part lawsuit.

2002:

The company launches the “We live where you live” ad campaign.

Battling Industry Challenges: 1980s

During the 1980s, the property and casualty insurance industry was rocked by a number of problems. The industry suffered sharp increases in claims costs, especially natural-disaster claims and environmental-cleanup costs in the commercial arena. The rising cost of car parts, labor, medical treatment, and litigation was also impacting the cost of insurance, and customers were complaining.

In 1988, in reaction to the rising cost of insurance, California voters approved Proposition 103, legislation calling for an overhaul of the state’s insurance system, resulting in major rate reductions for auto, homeowners’, and business insurance, and a regulatory panel to approve rate increases, replacing the longstanding system in which insurers set their own rates. State Farm was one of the insurers that appealed this ruling and, along with other insurers, was required to justify its rate levels.

In 1989, a policyholder lawsuit was brought against State Farm. The suit alleged that State Farm was holding as its reserve twice as much as the industry standard and led to a court order requiring State Farm to distribute $6.87 billion in refunds to policyholders. State Farm claimed its conservatism was practical and necessary; CEO Edward B. Rust, Jr., told Business Week, August 21, 1989, “When it comes to claim time, customers don’t want an IOU.”

In 1989, disaster-claim payments were more than twice as large as in any other year on record. Between Hurricane Hugo in South Carolina and earthquake damage in California, State Farm paid out nearly $35 million to cover damage to vehicles and $570 million for property damage.

Despite these problems for the property and casualty insurance industries, State Farm continued its strong position relative to its competitors in all of its insurance lines. State Farm’s earned premiums on health insurance placed the company third among health insurers. In addition, the outlook for the life insurance industry was one of growth, and State Farm Life affiliates, ranked eighth among life insurers, were in position to capitalize on this growth. As the number of persons with AIDS continued to rise, and more AIDS-related deaths occurred, life insurers feared that the related financial burden could reach unprecedented proportions later in the decade. This situation lead to controversy over life insurers’right to screen applicants for AIDS.

Throughout its history, State Farm built a record on its ability to deliver automobile, other property and casualty, health, and life insurance at competitive prices. This was achieved through innovative marketing strategies, financially sound business practices, lobbying in the political arena, and large-scale public relations campaigns. In the competitive insurance industry, State Farm’s ability to keep its customers wellserviced, along with its smart business practices, continued to be key in its future success.

1990s and Beyond

State Farm faced just as many problems in the 1990s, however, as it had during the previous decade. By 1993, natural disasters such as earthquakes and hurricanes had left most in the insurance industry scrambling to get their finances back on track. Meanwhile, State Farm’s litigation record left it subject to negative publicity, which began to tarnish its “good neighbor” image. After an earthquake in California in 1994, customers filed suit against State Farm, claiming that the insurer had cut their coverage in an attempt to forego claims payments. State Farm settled the suit in 1997, paying out $100 million to those involved.

Then, in 1998, the firm was forced to pay $200 million in a class action suit that claimed State Farm life insurance agents had used misleading sales tactics. The firm also had to pay a string of punitive damages related to misconduct, including $25 million for document destruction and $9.5 million related to fraudulent medical claims. To make matters worse, an Illinois state court ruled against State Farm in 1999 after policyholders brought suit against the company for using poor quality replacement auto parts, which was in breach of the policyholder’s contract. Throughout the litigation, State Farm maintained its innocence, claiming it had not acted in a fraudulent manner. The Illinois court thought otherwise, and in October the policyholders were awarded $456 million. Later that month, State Farm was forced to pay an additional $730 million in punitive damages for its misconduct. “While the legal judgments aren’t an economic threat to State Farm, which has a policyholder surplus of nearly $45 billion, they do raise questions about whether something has gone awry inside the nation’s largest property insurer, which has worked hard to become one of America’s most trusted companies, ”claimed a 1999 Business Week article.

Despite its legal woes, State Farm went on with a “business as usual” attitude. Even with the negative publicity brought on by its public court battles, State Farm’s customer loyalty remained high. In fact, in 1998 it lost just 4 percent of its auto insurance customers, a figure well below the 7.5 percent industry average.

State Farm made a move into the financial services sector in 1998 by creating State Farm Financial Services F.S.B, which offered services that included deposits, residential mortgage loans, home equity loans, and auto loans via the Internet, by mail, and by telephone. As a nontraditional banking concern, the State Farm Bank did not operate any branch offices. The company’s focus on financial services continued into the new century. It began offering mutual funds and also started testing a wealth management services program that it created with Phoenix Home Life Insurance Co.

During 2001—the company’s third largest catastrophe year in its history—State Farm faced several challenges. The company decided to exit New Jersey’s auto insurance market due in part to the state’s auto insurance regulations, which drove insurance rates down. The firm’s homeowner’s insurance sector was also plagued with a flood of claims related to mold, especially from Texas policyholders. In September 2001, State Farm stopped accepting new business in Texas. By 2002, it had dropped new homeowner business in 17 states.

High underwriting losses forced State Farm to report an overall net loss of $5 billion in 2001. As such, the company began positioning itself for financial recovery. It streamlined its 25 regions into 13 zones and began focusing on expense management. The company also launched a new advertising campaign with the tagline “We live where you live,” a reference to its presence in the United States, Canada, and on the Internet. During 2002, State Farm continued to focus on restructuring its operations as well as increasing its reach in the financial services sector. While the company would no doubt face distinct challenges in the future, State Farm stood well positioned to continue its long history of success in the insurance industry.

Principal Subsidiaries

State Farm Life Insurance Company; State Farm Life and Accident Assurance Company; State Farm Fire and Casualty Company; State Farm General Insurance Company; State Farm Federal Savings Bank; State Farm Investment Management Corp.; State Farm County Mutual Insurance Company of Texas; State Farm Florida Insurance Company.

Principal Competitors

The Allstate Corp.; American International Group Inc.; Liberty Mutual Insurance Companies.

Further Reading

Boylan, Anthony Burke, “State Farm Plots Banking Breakout,” Crain’s Chicago Business, December 18, 2000, p. 1.

Daniels, Steve, “State Farm’s Homeowner Biz Capped,” Crain’s Chicago Business, July 29, 2002, p. 1.

France, Mike, and Andrew Osterland, “State Farm: What’s Happening to the Good Neighbor?,” Business Week, November 8, 1999.

“Like a Competitor, State Farm Is There,” Mortgage Marketplace, November 23, 1998.

Reich-Hale, David, “Wealth Management? State Farm Is There Now Too,” American Banker, April 9, 2001, p. 9.

Schriftgiesser, Karl, The Farmer from Mema, New York: Random House, 1955.

Cole, Robert J., “Unorthodox Insurer,” New York Times, October 28, 1973.

Starr, Mark, “State Farm’s Policies Make It Number One But Irk Competitors,” Wall Street Journal, June 14, 1976.

“State Farm Debuts New Theme,” Brandweek, April 8, 2002, p. 7.

—Carole Healy

—update: Christina M. Stansell

State Farm Mutual Automobile Insurance Company

One State Farm Plaza
Bloomington, Illinois 61710
U.S.A.
(309) 766-2311
Fax: (309) 766-6169

Mutual Company
Incorporated: 1922
Employees: 52,236
Assets: $35.49 billion

State Farm Mutual Automobile Insurance Company has been the number-one automobile insurer in the United States since 1942. The company has a long-standing reputation for offering vehicle insurance at low rates, while maintaining a standard of superior service. It is no accident that State Farm, with its 20% share of the U.S. market, is well in the lead of its competitors. From its inception State Farm instigated several revolutionary practices, and while its maverick business practices far from endeared the company to its rivals, it gained the reputation of industry pacesetter. As an article in The Wall Street Journal, June 14, 1976 stated, “State Farm’s whole history is one of turning the insurance industry upside down and coming out on top.”

State Farm began in 1922 as one man’s plan to offer low-cost automobile insurance to the farmers of Illinois: thus the name, State Farm Mutual Automobile Insurance Company. State Farm’s early success and strong standing in a volatile marketplace is surely due to the vision of the company’s founder, George Mecherle. Mercherle’s beginnings are as modest as the company’s success is extraordinary. He was a farmer until he was 40, when his wife’s failing health forced them to leave their farm and Mecherle started selling insurance with a Bloomington, Illinois, company. Running his own farm had shaped Mecherle into a man who was constantly looking to innovate and improve conditions. When, in his characteristic outspoken, straightforward manner, he told his boss at the insurance company some of his ideas for improving the business, the boss said, “Well George, if you don’t like the way we run things, go start your own company.”

Mecherle did just that. He 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. 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. The Wall Street Journal observed that, “Until the late 1950s, the company’s competitors were clinging to their traditional insurance rates while State Farm was boasting in ads of savings of ‘up to 40%’ on its auto insurance.”

State Farm was also a pioneer in the practice of charging its customers an initial lifetime membership fee to cover the cost of processing new policyholders and the agent’s commission. This one-time, nonrefundable fee allowed State Farm to keep the policy premium low, and it generated essential income which fueled the company’s early growth.

Aside from its independent approach to rates, another key element in State Farm’s success was its unique agent force. Normally, insurance agents represented a number of different companies, took large commissions, and shouldered a great deal of the paperwork involved in writing and maintaining policies. Mecherle simply tapped into the network of farmer’s mutual insurance companies formed to protect members against fire or lightning damage, as well as farm bureaus and other local institutions established throughout various regions. 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. Selling a sound, affordable insurance package to a population that needed it, however, 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.

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. For instance, State Farm followed other companies in offering semiannual—and later monthly—policy payments, which customers found easier to pay, and, at the same time, led to accounting advantages for State Farm. State Farm also streamlined operations from the start, simply collecting premiums for a renewed policy on a vehicle, whereas most automobile insurers rewrote the policy each year.

Before long, the company was turning away unsolicited applications for insurance that were coming from prospective customers in urban areas. In 1926 a subsidiary, the City and Village Automobile Insurance Company, was formed, but because it lacked economy of scale, was soon absorbed by State Farm Mutual, which rewrote its bylaws to allow for the extension of services to those urban customers not originally eligible for State Farm insurance.

In 1928, just six years after the company’s founder told a banker in Bloomington, “I’ve never had an account here... I’ve never cashed a check here, as far as I know. I’ve never tried to borrow your money. But I’m going to start a little business in this town and, by golly, you’re going to lend me the money I need to get started,” the company opened its first branch office, in Berkeley, California, and annual income surpassed $1 million. In 1929, the company moved into its own eight-story building, to which it added five floors in 1934. In 1939, State Farm built another eight-story building next door, to which it also added five floors in 1948. In the early 1970s the company built its present headquarters at a site on the eastern edge of Bloomington.

The company’s growth was not just a matter of volume; State Farm continually expanded the services it offered. In January 1929 the company formed a subsidiary, State Farm Life Insurance Company, which, like its parent company, has flourished.

During the banking holiday that brought in the New Deal era, State Farm Mutual operated at a loss, but it continued to operate at a time when many insurance companies folded. The National Recovery Act eliminated discounts on auto parts, and increased wages under this act sent repair costs higher. State Farm tightened in its belt, dropped coverage in its highest risk areas, and continued to attract and satisfy customers.

In 1935 it diversified again with the formation of the subsidiary State Farm Fire Insurance Company, which in 1950 merged with State Farm Casualty Insurance Company to form State Farm Fire and Casualty Company, which quickly became the largest insurer of homes and pleasure boats in the nation. In 1937 George Mecherle became chairman of the board of directors. Ramond Mecherle, who had been with the company for 13 years, was elected president, and G. Ermond Mecherle, who had been acting as director of personnel, was elected secretary.

Under G. Ermond Mecherle’s direction, State Farm established a progressive program that addressed employee welfare on several levels, including financial, physical, and educational. He also worked to improve morale. Posture chairs made their appearance as early as 1935.

In 1939 State Farm launched a campaign to reach one million automobile insurance policyholders. The “One million or more by ’44” effort relied heavily on advertising, and the company’s advertising budget, which amounted to only $16.25 in 1923, swelled to an astonishing $202,000 in 1941.

With the advent of World War II in 1941, car production for civilian use came to a standstill, gasoline was rationed, and rubber for new tires became largely unavailable. State Farm wrote only 607 fewer policies than the year before—which had been a record-breaking year of growth for the industry in general, and State Farm in particular. State Farm kept growing, pulling further ahead of its competitors, both mutual and stock. In March of 1944, in spite of the war, State Farm had one million auto insurance policies in effect. This represented a 110% increase in five-and-a-half years.

The postwar years were chaotic and fraught with serious problems for the auto insurance industry. There was a shortage of dependable, well-educated personnel, as well as a severe lack of sufficient office equipment and office space. This was at a time when Americans were rediscovering their automobiles, driving them farther, and driving them faster. Claims were flooding into insurance companies, their numbers rising 41% in 1945, and 57% in 1946. The total underwriting loss for the industry during 1945 and 1946 was estimated at $300 million, and for a few months in 1946, State Farm was losing money at a rate of $1 million a month.

It took State Farm several years to regroup and effectively meet the demands of its customers. During this period, State Farm established stricter criteria for accepting new policyholders, setting an age limit on cars and not accepting those policyholders who were very young or very old. State Farm also worked to educate the public in a national automobilesafety campaign. As part of a restructuring plan, branch offices were established in 1947, the first of which opened in Saint Paul, Minnesota, and a committee was appointed to organize the overcrowded and disorganized Bloomington home office.

George Mecherle exhibited his characteristic leadership during this difficult time. According to Karl Schriftgiesser, author of the The Farmer From Merna, Mecherle told the organizational committee, “Let us assume... that we are about to start all over, build a new company.... Remember there is nothing sacred here, nothing that can’t be done away with. Be as rough as you want. The only thing I insist upon is that you do not depart from the basic principles on which State Farm has been built—the membership plan, the continuous policy, 6-months premium, and the happiness of our agency force.”

The committee restructured the company headquarters along geographical lines—with each department representing a region of the country and functioning independently on a day-to-day basis—which scaled down and refined operations significantly. When George Mecherle died in 1951, State Farm had over two million auto insurance policies in effect.

Due to special requirements in state laws, State Farm Life Insurance was unable to do business in New York, Connecticut, and Wisconsin, so to serve these states the subsidiary State Farm Life and Accident Assurance Company was incorporated in 1961. The next year, State Farm General Insurance Company was established to protect low-value property.

In 1962, State Farm offered auto insurance for 20% savings to students who were doing well in school, based on the hope that if they were home studying for their good grades, they would be less likely to be out driving cars. In 1963 the company instituted monthly premium payments, and agents were authorized to make on-the-spot auto claim payments of up to $250, which improved customer service considerably. In 1965 State Farm began offering limited health insurance. The policy offered $15 for every day a policyholder spent in the hospital. This payment was touted as a possible supplement to other health insurance a person may have, perhaps to help pay for a babysitter or a housekeeper while a mother was away from home.

In 1966, an advanced computer system was installed, linking regional offices to headquarters in Bloomington. This investment, and the attention State Farm was paying to customer service earned State Farm praise from consumer groups in 1970.

There were periods when State Farm experienced large underwriting losses, that is, when payments on claims were much higher than income provided by premiums. Through smart investing and the ability to mobilize to cut costs during loss years, however, State Farm has stayed on top. A classic example is underwriting in 1971, in which State Farm’s profit was $263 million, compared to $38 million in 1970. State Farm made headlines with its $30 million refund to policyholders as a result of high earnings in 1971.

The company has taken independent stands on controversial issues: company executives feel that the insurance industry should not be exempt from Federal antitrust laws, as it has been for decades. State Farm also supports federal no-fault-insurance legislation. There has been criticism that the company discriminates against minorities. It divides urban areas up into different risk zones, and charging higher rates to those in higher risk zones, which tend to be in the inner city. The company had also been challenged in a number of court cases in the late 1970s and in the 1980s alleging sex and racial discrimination in its hiring of agents. To criticism that State Farm has long been “creaming off” the best drivers, Vice President Thomas C. Morrill once responded, “every underwriter tries to screen risks, but this isn’t to say we go only after the cream. We just try to exclude the dregs.”

During the 1980s, the property and casualty insurance industry was rocked by a number of problems. The industry suffered sharp increases in claims costs, especially naturaldisaster claims and environmental-cleanup costs in the commercial arena. The rising costs of car parts, labor, medical treatment, and litigation is also impacting the cost of insurance, and customers are complaining.

In 1988, in reaction to the rising cost of insurance, California voters approved Proposition 103, legislation calling for an overhaul of the state’s insurance system, resulting in major rate reductions for auto, homeowners’, and business insurance, and a regulatory panel to approve rate increases, replacing the long-standing system in which insurers set their own rates. State Farm is one of the insurers that appealed this ruling and, along with other insurers, was required to justify its rate levels.

In 1989, a policyholder lawsuit was brought against State Farm. The suit alleges that State Farm is holding as its reserve twice as much as the industry standard, and seeks a court order requiring State Farm to distribute $6.87 billion in refunds to policyholders. State Farm claims its conservatism is practical and necessary; CEO Edward B. Rust Jr. told Business Week, August 21, 1989, “When it comes to claim time, customers don’t want an IOU.”

In 1989 disaster-claim payments were more than twice as large as in any other year on record. Between Hurricane Hugo in South Carolina and earthquake damage in California, State Farm paid out nearly $35 million to cover damage to vehicles, and $570 million for property damage.

Despite these problems for the property and casualty insurance industries, State Farm continues its strong position relative to its competitors in all of its insurance lines. State Farm’s earned premiums on health insurance places the company third among health insurers. In addition, the outlook for the life insurance industry is one of growth, and State Farm Life affiliates, ranked eighth among life insurers, are in position to capitalize on this growth. As the numbers of persons with AIDS rises, and more AIDS-related deaths occur, life insurers fear the related financial burden will reach unprecedented proportions later in the decade—and a controversy has arisen over life insurers’ right to screen applicants for AIDS.

Throughout the years, State Farm has built a record on its ability to deliver automobile, other property and casualty, health, and life insurance at competitive prices. This has been achieved through innovative marketing strategies, financially sound business practices, lobbying in the political arena, and large-scale public relations campaigns. In this competitive industry, State Farm’s ability to keep its customers well-serviced, and its own smart business practices will continue to be the key to its future success.

Principal Subsidiaries

State Farm Life Insurance Company; State Farm Life and Accident Assurance; State Farm Fire and Casualty; State Farm General Insurance; State Farm Lloyds.

Further Reading

Schriftgiesser, Karl, The Farmer From Merna, New York, Random House, 1955; Cole, Robert J., “Unorthodox Insurer,” The New York Times, October 28, 1973; Starr, Mark, “State Farm’s Policies Make It Number One But Irk Competitors,” The Wall Street Journal, June 14, 1976.

—Carole Healy

State Farm Mutual Automobile Insurance Company

One State Farm Plaza
Bloomington, Illinois 61710-0001
USA
Telephone: (309) 766-2311
Fax: (309) 766-3621
Web site: www.statefarm.com

TRUE STORIES CAMPAIGN

OVERVIEW

The leading automobile insurer since World War II, State Farm Mutual Automobile Insurance Company had relied for many years on advertising that took a serious tone and was anchored by its longtime slogan, "Like a good neighbor, State Farm is there." But in the 1990s the industry was turned upside down by direct marketer GEICO, which emerged from obscurity to blanket the television airways with a bevy of humorous commercials promoting the low price of its car insurance, which it was able to offer largely because it did not maintain the extensive agent network of a company such as State Farm. The Progressive Corporation also beefed up its marketing budget to make its own price pitch. State Farm and its closest competitor, Allstate, shied away from the insurance price war that developed, but by the first decade of the new millennium, price had become paramount in the mind of consumers, and State Farm, which had always promoted customer service over price, found itself losing market share. In 2004 State Farm released a new advertising campaign created by ad agency DDB Chicago. Called "True Stories," it made the case that an agent-client relationship was important.

The "True Stories" television spots were humorous depictions of unusual ways that actual State Farm agents helped their customers. The agents played themselves, while the customers and supporting cast were portrayed by actors. One spot, for example, concerned a Wisconsin State Farm agent who was also the local diver. When an out-of-town driver accidentally drove his car into a lake, the agent simultaneously settled the claim and salvaged the car. The budget for "True Stories" was not made public.

State Farm was pleased enough with the campaign to continue producing new television spots, including one that first aired during the pregame show for the 2006 Super Bowl. State Farm began to reverse the trend of losing market share, and in 2005 the company exceeded its sales quota by a large margin.

HISTORICAL CONTEXT

Since 1971 State Farm had centered its marketing around the slogan "Like a good neighbor, State Farm is there." The advertisements of State Farm and such rivals as Allstate and Nationwide touted their networks of agents and the customer service they provided, while avoiding any mention of price. In the 1990s GEICO, a direct marketer with no agents at all, began to upset the balance of the industry. The broad humor it employed in its commercials was a complete departure from the warm and serious tone adopted by State Farm and the old-guard insurers. More importantly, GEICO and the Progressive Corporation began bombarding the media with advertising that focused solely on price. They had everything to gain by such an approach, and both added market share during the 1990s and into the new century. State Farm, on the other hand, refused to contend for business on those terms, fearful that auto insurance would be reduced to commodity status: a low-profit item, only the cheapest of which customers bought. Instead the company continued to emphasize the level of customer service that its agents provided, maintaining that it warranted the higher costs of its premiums.

Although State Farm maintained it top position in the auto-insurance market, it began to experience erosion in the first years of the new millennium. It enjoyed a 19.3 percent share of the private-passenger auto-insurance market in 2002, but that number dipped to 19 percent in 2003 and continued to decline in 2004. Through their constant advertising GEICO and Progressive had changed the terms of the debate about shopping for auto insurance: price had become paramount, and the value of having a relationship with a agent was relegated to secondary status. In many ways the auto-insurance field was engaged in a battle of business models. Writing for Advertising Age, Mya Frazier reported that the fight was "pitting the call-center row of headset-wearing operators taking claims and signing on new customers against neighborhood agents who know a customer's kids and may even be a neighbor. It's pitting Internet price quotes vs. in-office consultations and the yearly search for a best price vs. a lifetime relationship with an agent." The direct model was enjoying faster growth than the agent-based approach. In an effort to return the focus to service and differentiate between price and value, State Farm in 2004 released its "True Stories" campaign, a lighthearted depiction of the lengths to which actual State Farm agents would go in service of their customers. While State Farm did not give in to GEICO and adopt a price message, it did drop its usual serious tone in favor of humor.

TARGET MARKET

Auto insurers had to contend with one of the broadest target audiences in all of marketing. The law required every driver to be insured, creating a massive pool of potential clients that encompassed all genders, races, and ages. The younger demographic, however, was more price-conscious and had not grown up with the assumption that one did business with an agent. In fact, many of them preferred not to have a relationship with an agent and were more than willing to switch insurance companies if the price was right. It was the older, less price-sensitive driver who was a more appropriate target for State Farm's "True Stories." Many of these people were already State Farm customers, and the company was eager to keep their business by reminding them of the value of an agent relationship. The campaign also sought to persuade other older drivers of the importance of what State Farm had to offer. At the same time the company was not writing off younger customers. One of the television commercials focused on a young woman who had two accidents within her first hour of having a driver's license. The spot appealed to both young people and parents.

COMPETITION

State Farm's closest rival was Allstate, which had about 10 percent of the auto-insurance market in 2004. Next came Progressive with 7.1 percent and GEICO with 5.5 percent, followed by Farmers Insurance Group, Nationwide Group, United Services Automobile Association Group, American International Group, Liberty Mutual Group, and American Family Insurance Group. Because of GEICO's attention-grabbing advertising and Progressive's willingness to spend exorbitant amounts of money on television advertising, every company in the industry was forced to follow suit. The bulk of the advertisements were price appeals, and even Allstate, which, like State Farm, had always avoided such a message, made a concession to the prevailing trend. Its "Our Stand" campaign, featuring actor Dennis Haysbert, who played the U.S. president in the hit television series 24, began in November 2003. It promoted Allstate's good-driver discount and touted statistics showing that people who switched to Allstate saved $200 a year on average.

A SPECIALIST IN TRUE STORIES

The first television spots in State Farm's "True Stories" campaign were directed by Academy Award-winning documentary filmmaker Errol Morris. He received his Oscar in 2004 for The Fog of War, concerning the life of Robert S. McNamara, U.S. secretary of defense during the Vietnam War. Morris's other documentaries included Gates of Heaven, The Thin Blue Line, A Brief History of Time, and Fast, Cheap, and Out of Control.

There was another compelling reason that insurers were padding their marketing budgets in an effort to poach customers from one another: the car-insurance business had become more profitable than ever. Cars were better built and safer. There were fewer accidents caused by mechanical problems, and as a result insurers paid out fewer claims. The U.S. population was also growing older. Older drivers tended to drive slower and more cautiously, again resulting in fewer accidents and claims and greater profits for insurers. Hence, State Farm's eroding market share was costing it a great deal of money. The company wanted not only to hold the line but also to build on its number one position and post even greater profits in the years to come.

MARKETING STRATEGY

The purpose of the "True Stories" campaign was to demonstrate the personal care that State Farm agents offered their customers. The company's advertising agency, DDB Chicago, said that to develop the campaign it had contacted State Farm's 13 regional zones, asking agents to submit actual customer experiences that revealed exceptional and highly unusual service. About 250 agents responded; 15 were determined to be of interest, and of them 6 were chosen to be dramatized. While actors would play most of the roles, the State Farm agents played themselves.

How the agents appeared on film, however, may have played a major part of the selection process. According to About Business, published by the city of Edina, Minnesota, one of the State Farm agents featured in "True Stories," local woman Joan Roisum, was nominated by a State Farm regional vice president. Next she was videotaped to determine if she was photogenic enough for the commercial. According to writer Cheryl Anderson, "She then needed to have a 'true story' to capture the interest of both State Farm and its advertising agency. They called her periodically for a year to ask if she had a story about a particular topic, but her stories had not interested them." Roisum finally caught the agency's attention when she was asked if she had any stories about people who switched from another insurer to State Farm. She told them about a newly married couple with whom she had worked: they had two of everything, including dogs, but the wife was a GEICO customer and the husband a State Farm customer. In the end they kept State Farm. A few weeks later Roisum was in Hollywood to shoot her commercial.

The 30-second television spots were first shown during baseball's World Series, which was telecast on the Fox network on October 23, 2004. Subsequently the commercials aired on major network shows and cable programming. In addition to the general-market spots, the campaign included the creation of single spots aimed at the African-American, Hispanic, and Chinese-American markets (for the latter separate spots were filmed in Cantonese and Mandarin). The spot called "Diver" featured Wisconsin State Farm agent Larry Bitterman, who served an out-of-town State Farm driver whose car had somehow fallen into a lake as a result of a faulty map. Not only did Bitterman settle the claim, but he also helped raise the car from the lake in his capacity as local diver. The "New Driver" spot showed a State Farm agent providing counsel for a San Jose, California, teenager who crashed her car twice in 10 seconds, within 45 minutes of receiving her driver's license. Her tale was interwoven with commentary from her parents and brothers. Other spots included Roisum's newlyweds as well as twin sisters who had accidents in the same intersection. The six agent stories were also fleshed out on the Internet as interactive ads. Radio versions of the television spots were created, and the campaign included a handful of print ads, but television was far and away the main messenger. Although one spot touted State Farm's financial services, the campaign focused on car insurance.

OUTCOME

State Farm considered the "True Stories" campaign a success and continued to air the television spots, along with new executions, into 2006. One of the new spots made its debut during the pregame ceremony of the 2006 Super Bowl. In 2004 State Farm's market share fell further, to 18.2 percent. In the company's annual report chairman and chief executive officer Edward B. Rust, Jr., made note of the poor showing of State Farm's auto division, writing, "Although we wrote 5.6 million auto applications and added more than 375,000 policies and accounts to our total book of business, we fell short of our growth goals in our core auto business. Our toughest competitors increased their share of the auto market—we did not." The situation improved in 2005, however, when State Farm made great strides in reversing the trend. The company set a goal of 400,000 new policies and exceeded that number by 225,000. Consumers surveys conducted after the start of the campaign also revealed significant improvement concerning positive brand image and likelihood for a non-State Farm customer to consider State Farm as an insurer.

FURTHER READING

Anderson, Cheryl. "National Television Ad Features True Story of Edina Insurance Agent." About Business, Winter 2006, p. 14.

Cavanaugh, Bonnie Brewer. "Price Wars." Best's Review, October 2005, p. 37.

Dunlap, Bill. "Errol Morris: Reel Life." Shoot, March 25, 2005, p. 27.

Frazier, Mya. "Progressive, Geico Prod Auto Rivals into Price War." Advertising Age, February 28, 2005, p. 4.

Goch, Lynna. "State Farm's Commercials Feature Agents on the Job." Best's Review, December 2004, p. 69.

Lazare, Lewis. "Stunt to Sell Taste if Tasteless." Chicago Sun-Times October 22, 2004.

"State Farm Spots Tell 'True Stories." Adweek (midwest ed.), October 22, 2004.

Waggoner, Judy. "Appleton Insurance Man Stars in TV Ad." Appleton (WI) Post-Crescent, June 13, 2005.

Wasserman, Todd. "Risky Business." Brandweek, November 15, 2004, p. 6.

                                              Ed Dinger

State Farm Mutual Automobile Insurance Company

founded: 1922

Contact Information:

headquarters: 1 state farm plz. bloomington, il 61710-0001 phone: (309)766-2311 url: http://www.statefarm.com

OVERVIEW

State Farm holds first place among U.S. automobile insurance companies. Since its founding, more than 65.8 million policies in the areas of automobile, life, home, and health insurance have been sold. In the United States and Canada, State Farm has 69,600 employees and sells policies through 16,500 independent agents.

State Farm is a mutual company as opposed to either a private or public (also called capital stock) company. In the case of a private firm, the customers have no stake whatsoever in the company's success or failure, whereas a public firm's stockholders gain or lose depending on the company's performance. A mutual insurance company will raise the cost of premiums (insurance fees) across the board depending on the balance of claims versus payments in a given year. For instance, if there are a particularly high number of auto accidents and natural disasters one year, more people will collect on their policies, and if this exceeds the money taken in by the company, everyone's rates may rise. If there are fewer claims than expected, the mutual insurance company may present its customers with dividend checks.

COMPANY FINANCES

In 1994 State Farm collected $23.2 billion in premiums and returned $206 million in dividends. In 1995 premiums were $24.1 billion, and dividends were $1 million. In 1996, due to underwriting losses in the previous years such as those associated with the Northridge, California earthquake, no dividends were returned on premiums of $24.7 billion. In 1997, on premiums of $25.3 billion, $651 million in dividends were returned.

HISTORY

In 1922 Illinois farmer George Mecherle found himself in a difficult situation. His wife had become ill, so they left their farm and moved to Bloomington, where Mecherle got a job selling insurance. Because he had different ideas about the insurance business than his employer, he decided to start his own firm geared toward the farmers of Illinois; thus the State Farm Mutual Insurance Company was born.

State Farm expanded rapidly from the beginning, outgrowing its offices three times before 1929. The company, originally geared toward rural customers, began to attract an urban clientele, and in 1928 it opened its first branch office in Berkeley, California. That year its annual receipts were more than $1 million.

The company continued to prosper even in the midst of the Depression. It formed several subsidiaries and, in 1939, began a campaign to sign one million new customers by 1944. Despite the fact that America was fighting World War II during that period, the company still reached its goal in March 1944. In 1942 it became the leader in automobile insurance in the United States, a position it still retained more than 50 years later.

Surprisingly, State Farm had a more difficult time in the years of the immediate postwar era, due to increased driving and higher claims. But with reorganization and changes of some methods, the company began to prosper again. In 1965 it entered the health insurance business, having already begun life and home insurance subsidiaries decades before. During the 1970s and 1980s, State Farm faced a variety of legal issues, some of which were industry-wide. In the late 1980s and 1990s, it encountered new insurance challenges including increasingly severe natural disasters and the spread of AIDS.

STRATEGY

Two innovative elements of George Mecherle's 1922 strategy were still in force more than seven decades later: the tying of rates to risk level; and the use of a low-commission, high-volume agent force closely allied with the company.

Though it is now common practice, prior to the time State Farm began tying its insurance rates to the amount of risk involved in insuring a certain group, everyone paid the same rate. Statistics show, for example, that young urban males have many more accidents than mature rural females; therefore they are more costly to insure. When State Farm first lowered rates to its rural clientele in the 1920s, it was considered revolutionary.

In addition, State Farm also instituted a unique agent force. Before State Farm, agents represented a number of insurers and took high commissions. George Mecherle hired farmers and respected citizens he knew, made them representatives of State Farm exclusively, and paid them lower commissions. As Mecherle had expected, his agents were trusted in the community, and they made more money through high volume than they would have through high commissions.

INFLUENCES

The biggest influence on State Farm has been the can-do spirit of founder George Mecherle, described in the book The Farmer from Merna by Karl Shriftgiesser. Mecherle shepherded his company through the difficult times of the Depression and World War II, when gas rationing and other restrictions on automobile use decreased the need for auto insurance. State Farm pulled through and actually prospered.

FAST FACTS: About State Farm Mutual Automobile Insurance Company

Ownership: State Farm is a mutual company.

Officers: Edward B. Rust, Jr., Pres. & Chmn.; Vincent J. Trosino, Sr. VP & Treasurer

Employees: 69,600

Principal Subsidiary Companies: State Farm's subsidiaries include: State Farm Indemnity Company; State Farm Life Insurance Company; State Farm Life and Accident Assurance Company; State Farm Fire and Casualty Company; State Farm General Insurance Company; State Farm Lloyds; and State Farm County Mutual Insurance Company ofTexas.

Chief Competitors: State Farm competes with other large insurance companies including: AETNA; AFLAC; Allstate; Blue Cross/BlueShield; Chubb; Cigna; Metropolitan; Nationwise; and Prudential.

Ironically, it was in the boom years that followed the war when the company faced more challenges. Americans, eager to use their automobiles again and to take advantage of their newfound prosperity, were driving more than ever and making more insurance claims. In 1946 State Farm began losing $1 million a month. Still, Mecherle had a positive attitude, insisting on a few basic principles, but then telling his employees that anything else could be changed to meet the changing times. As a result, the company was able to reorganize, and by the time of Mecherle's death in 1951, State Farm had more than two million automobile insurance clients.

CURRENT TRENDS

The number one trend in the 1990s was the increased cost of doing business due to both natural and political factors. In the natural realm, a long string of disasters had an effect on the insurance industry in general, as well as State Farm in particular. These disasters included: Hurricane Hugo, which struck the Carolina coast in 1989; the San Francisco earthquake of 1989; Hurricane Andrew, which pounded south Florida in 1992; the Midwest flooding of 1993 and again in 1997; and the Northridge, California, earthquake of 1994. According to Best's Review, in 1995 homeowners' insurance companies suffered losses of $3.2 billion, a number exceeded only two other times in American history: in 1994 ($17 billion) and 1992 ($22.9 billion).

Another major source of underwriting loss was the AIDS virus. State Farm and other insurers faced controversy over whether they could screen applicants for the fatal, and expensive, disease before agreeing to insure them.

In the 1990s State Farm and other insurers were criticized from the political left for their reluctance to sell insurance to persons living in low-income minority neighborhoods, a practice known as "redlining." This reluctance was reflected either in an outright refusal to sell policies or by charging higher rates. The insurers maintain that this has nothing to do with racial discrimination and everything to do with money; since crime and vandalism rates are statistically much higher in inner cities, than in predominantly white suburbs, it is less cost effective to sell insurance in inner cities according to Michael McCracken in National Underwriter. McCracken also criticized State Farm for agreeing to settle with the U.S. Department of Housing and Urban Development (HUD) in exchange for its dropping redlining claims against the company.

State Farm received criticism from the other end of the political spectrum in 1997 when it was noted that the company, along with competitor Chubb, had provided a substantial portion of the funds needed to pay President Clinton's attorney in the Paula Jones sexual harassment case. The insurers contended that this was simply a payoff of a policy taken out by the president.

In addition to these political battles, State Farm faced a number of challenges in court in the late 1990s and, in the case of a California proposition to lower insurance rates, at the ballot box. These challenges often had a high price tag, even if State Farm won.

CORPORATE CITIZENSHIP

State Farm has joined the Corporate Alliance to End Partner Violence, a non-profit organization dedicated to combating domestic abuse. Individual employees are encouraged to get involved in their schools and communities. The company has also established several internal recycling programs.

EMPLOYMENT

As far back as 1935, State Farm had programs in place to boost company morale and even provided its workers with "posture chairs" to help their backs as they sat at desks for long hours. On the other hand, the company has had several gender-bias lawsuits filed against it.

CHRONOLOGY: State Farm Mutual Automobile Insurance Company

1922:

George Mecherle establishes State Farm, focusing on the farmers of Illinois

1928:

Opens its first branch office in Berkeley, California

1929:

Establishes the State Farm Life Insurance Company

1935:

Establishes the State Farm Fire and Casualty Company

1942:

Becomes the leader in automobile insurance

1944:

Gets its one millionth new customer

1965:

Enters the health insurance business

1971:

Due to high earnings, the company offers refunds to policyholders

1989:

Disaster-Claim payments are more than twice as high as any other year in the company's history

1992:

Due to Hurricane Andrew, insurance companies as a whole lose $22.9 billion

1997:

A.M. Best Company gives State Farm a Superior (A++) rating

State Farm employees have received favorable press. For example, a July 1996 article in Incentive magazine commended agents for the way they handled difficult times such as the aftermath of Hurricane Andrew in south Florida. Also, The Loyalty Effect by Frederick Reichheld listed 15 companies, including State Farm, as outstanding in the area of instilling employee loyalty.

SOURCES OF INFORMATION

Bibliography

barrett, paul m., and alex markels. "legal beat: a bias lawsuit doesn't ensure real diversity." wall street journal, 27 february 1997.

boyd, malia. "insuring success." incentive, july 1996.

"calif. insureds gain right to sue for unfair practices." national underwriter, 3 june 1996.

gilbert, evelyn. "state farm hikes calif. homeowners ins. rates." national underwriter, 3 june 1996.

healy, carole. "state farm mutual automobile insurance company." international directory of company histories. detroit, mi: st. james press, 1996.

mccracken, michael k. "big brother strikes again in state farm redlining deal." national underwriter, 9 september 1996.

niedzielski, joe. "state farm explores move to form or buy bank." national underwriter, 27 january 1997.

shriftgiesser, karl. the farmer from merna. new york, ny: random house, 1955.

stansky, lisa. "corporate america taking up the cause." aba journal, july 1996.

state farm mutual automobile insurance company. this is state farm, bloomington, il: state farm, 1996.

"state farm settlement puts pressure on industry." national underwriter, 5 august 1996.

sweeney, patrick m. "homeowners results pummeled." best's review, december 1996.

york, byron. "white house life & casualty." american spectator, june 1996.

For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. state farm's primary sic is:

6331 fire, marine & casualty insurance