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Becoming A State Farm Agent – A scene from a recent State Farm commercial where a representative helps a customer. Agents are featured prominently in State Farm ads.
If you’re looking for clues about what State Farm is up to, look no further than the big black building overlooking Veterans Park. Look at Rhode Island.
Becoming A State Farm Agent
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That’s where State Farm is experimenting with a new model for car insurance. It’s called HiRoad, and it’s basically insurance by app. The app tracks how you drive and charges you more or less each month based on how safe (or careless) you are driving. It’s fast, quotes in five minutes and claims you can file through the app.
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It’s a bold direct-to-consumer move for State Farm, a company deeply rooted in selling and servicing policies through its agent network. In fact, State Farm’s name is barely on HiRoad’s website and app. You don’t know it belongs to State Farm.
“HiRoad is a great example of a concept we’ve built at State Farm to look at auto insurance through a new lens,” said Laurette Stiles, vice president of State Farm’s strategic resources unit, which studies competitors and industry trends to guide internal decision-making. . “We’re running very successfully on a very short timeline with a very interesting trial and test.”
A major restructuring is underway at State Farm, raising concerns about what it could mean for Bloomington-Normal’s economy. The public hears about those workforce changes in bits and pieces. One day the company says it will eliminate 890 local IT jobs. Next, it says more claims and State Farm bank jobs are on the move.
If the move seems unusual for a company known in the industry for workforce stability, one reason may be that State Farm faces unusually stiff competition on two fronts. While Geicos and Progressives are still trying to get rid of its 84 million policies, so-called “insurtech” startups like Lemonade are using technology to disrupt the market.
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“It’s a good thing for consumers, but the level of competition is very, very high,” said Stephen Weisbart, chief economist at the Insurance Information Institute (III), an industry research group. “New market entrants with new ideas on how to enter the market and deliver insurance.”
State Farm leaders say those competitive pressures require it to be more efficient — as a way to lower costs and therefore lower prices and get products and services to market faster. State Farm remains the largest insurer in the United States, with 19.2 percent of the homeowner market and 18.3 percent of the auto market in 2016, according to III. Its market share in homeowners insurance has fallen from 21.9 percent in 2010. Its market share in auto insurance has become more stable.
“With products and services, (do we) consider how many people do we need to do it? How can we do it more efficiently? How does it affect the price of our product? Styles said on GLT’s Sound Ideas. “Customers are interested in our products when they are competitively priced. It’s all part of the equation. “
One measure of efficiency is the expense ratio, the percentage of premiums an insurer pays as expenses such as employee salaries, agent commissions and fees. Generally, an insurer wants to control or even reduce its expense ratio.
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According to S&P Global Market Intelligence, State Farm’s overall expense ratio was 26 percent for 2017. That’s more than competitors like Geico, Progressive, and USAA, but equals the property-casualty insurance industry average of 27.3 percent.
“There’s a very clear trend in that competitive industry to try to cut costs,” said Paul Newsom, Chicago-based managing director of equity research at Sandler O’Neill and Partners, who has worked in or covered the industry for more than 20 years. . He looks at State Farm’s publicly traded competitors, such as Allstate and Travelers.
Indeed, State Farm CFO Jon Farney said in the March annual financial report that the company will be “leaner and stronger.” Restructuring State Farm’s three IT departments together — shrinking its IT workforce by 500 people companywide — will both streamline operations and cut costs, company officials say. State Farm Bank is also cutting employees by 18 percent, or about 366 employees.
State Farm is a bit of an outlier when it comes to cutting workers. About 58 percent of insurers said they plan to add staff in the coming year, according to the latest Jacobson Group and Ward Group’s Insurance Labor Market Study released in January. Only 11 percent plan to cut staff. Technology jobs are the fastest growing industry-wide.
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Progressive, a Top 5 auto insurer, is doing a bit of hiring as it tries to grow profitably, CEO Tricia Griffith told GLT in February.
“We’re growing like wildfire, it’s really incredible,” Griffith said. They added 6,660 new external hires in 2016, another 6,000 in 2017 and already 1,000 in 2018.
“State Farm is best known for the stability of its workforce,” said Greg Jacobson, CEO of The Jacobson Group. “Not only recent announcements about IT, but it can be surprising in the last few years.
“More than most insurance organizations, State Farm’s workforce is made up of people who grew up on State Farm,” Jacobson added. “It is unique in the insurance industry. You see people moving from one company to another. You don’t see that often at State Farm. “
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“State Farm has really invested heavily in IT and the solutions we develop through IT,” Stiles said. “So even if we reduce positions in Bloomington, we will add hundreds of positions at our hubs in Atlanta, Dallas and Phoenix.”
Other large insurers have also undertaken major restructuring projects, such as shifting resources to customer call centers instead of agent call centers, said J.D. Power Tom Super said. It’s all in response to an industry-wide shift to a customer-first focus rather than a channel-based structure (ie, keeping agents happy).
“(Restructuring) is more visible when State Farm does it because it’s one of the biggest players in the market,” Super said, adding that State Farm ranks “in the middle of the pack” on customer satisfaction in his company’s ratings.
The expectations of the average insurance consumer have changed significantly, especially with technology, said Ellen Carney, principal analyst at Forrester Research, which studies e-business strategy. Your experience on Amazon.com or a travel website can influence your expectations of ease of use on an insurer’s website or app, she said. That can be difficult to deliver because of baked-in industry challenges, such as consumers carrying different types of insurance products, she said.
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From 2013 to 2015, State Farm fell behind competitors in mobile (phone-based) services for auto policyholders, said Carney, who conducts a mobile performance study each year. But in 2017, State Farm’s score in Forrester’s study grew to 78.6 out of 100, slightly above the industry average. Forrester noted that State Farm is improving mobile tools like its depreciation calculator to help consumers avoid paying more on coverage as their vehicles age.
“They’re well prepared,” Carney said. “There was a time when they didn’t pay attention to this. It’s like somebody sitting in Bloomington and saying, ‘Oh my God, we’re falling behind. This is what consumers expect.”
Accustomed to digital brinkmanship with Geico and Progressive, State Farm is now fending off a challenge from a new competitor, Insurtech Startups.
Take Lemonade, an app-based insurer that delivers quotes in 90 seconds and claims payments in 3 minutes. It’s cheap: Lemonade says monthly premiums for homeowners insurance start at $25. Its tagline: “Forget everything you know about insurance.”
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Lemonade gained traction last year when it claimed a customer paid in 3 seconds, including time to run 13 anti-fraud algorithms against it.
“Everybody’s hair was on fire,” Carney said. “And I said, ‘You guys have to be really careful because there’s fast. And there’s good.’
Stiles, the vice president, said State Farm is learning from companies like Lemonade and accelerating the pace of its work, especially as a startup. Highroad — the Incertech subsidiary of State Farm, Rhode Island — launched relatively quickly, Stiles said.
“In any industry, disruptors are useful,” said Stiles, who has worked at State Farm for 35 years. “None of them may have longevity. But they offer a different way to think about and approach business.
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How does HiRoad work? It’s simple. Our app looks at your good driving, giving you the chance to save up to 50% every month. Learn more at https://t.co/vvMZISSEW5 pic.twitter.com/70hzvr4RNs — HiRoad Insurance (@HiRoadInsurance) December 13, 2017
Why did Highroad start in Rhode Island? One reason could be that State Farm doesn’t have agents there. (A HiRoad spokesperson said they “evaluated multiple states based on a variety of factors” before choosing Rhode Island.)
Elsewhere in the United States, State Farm’s nearly 19,000 representatives remain a central part of its business strategy.
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