State Farm CEO Michael Tipsard discussed a variety of insurance industry issues and trends with Triple-I CEO Sean Kevligan at Triple-I’s 2022 Joint Industry Forum. A unifying thread throughout their conversation was the continuing relevance of State Farm’s mutual ownership structure and “captive” agent network in today’s risk and operational environment.
State Farm is unusual among large U.S. insurers in that it has retained its mutual structure and continues to rely on a network of more than 19,000 captive agents to sell its products. Founded in 1922 by a farmer so farmers wouldn’t have to pay the same auto insurance premiums as city dwellers, State Farm has grown to become the largest home and auto insurance company in America by market share and written premiums.
The mutual structure — in which policyholders owned the insurer — was popular at the time, but in recent decades many mutual companies have converted to shareholder-owned companies to gain access to the capital needed to grow rapidly.
“This mutual system permeates everything we do, every decision we make,” said Tipshardt. “My focus is always on the best long-term interests of that State Farm customer group.”
Reciprocity “gives us the flexibility to make choices that our publicly traded peers might not think about,” he explained. “That reciprocity needs to be coupled with financial strength. Annual operating results are one means of doing that. We’re not subject to the same pressures as insurers to answer to external stakeholders.
Similarly, State Farm’s captive agent workforce — in all but two U.S. states — “are in their communities, day in and day out. They understand their customers because they live with them.
Tipchart noted that 95 percent of State Farm’s business comes through its agents, and “we’re reinvesting” in those workers.
When the pandemic hit and the lockdowns began, Tipchart said, “Our agents and team members reached out to their customers early — not to sell anything, to check, to see if they were OK. See if they need any help. There are hundreds of stories of agents identifying seniors who need help buying groceries. It always comes back to our mission of helping people.
But the success of the reciprocal model of the state farm and the captive agency force does not absolve the institution of the need to evolve with changing conditions. State Farm is “investing heavily in digitally enabling our agents, and our agents and their teams are quickly adapting to their customers’ expectations,” Tipchart said.
As part of that digitization effort, State Farm’s latest investment is a $1.2 billion investment in ADT for a 15 percent stake in the home security company.
“The most important thing about that transaction was the relationship that was created between State Farm, ATT and Google,” said Tipsard. “This is what I call the $300 million opportunity fund. Let’s dedicate resources so we can look for ways you can bring together these three companies with very different capabilities to help our clients.