Improving Decision Making: State Farm Insurance

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8th Feb 2020 Business Strategy Reference this

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Abstract 

Fortune 500 is the annual ranking of the United States Corporations which depends on the revenue collected for their fiscal year. This revenue collected from these companies depends on the services offered, level of competition and the level of demand from the marked. Obviously, the company which offers good services will fetch more market in a free competitive market than others. This is experienced when there is a free market competition among the companies in the market. Each company will struggle to increase the quality of their products and services. Advertisement of the company products and services will also boost its image in the market making public aware of the services offered. According to fortune global 2017 global report, in Europe 42 companies closed the fiscal year with losses in their accounts. Despite revenue ranking, profit earned by some companies is very high such that they can even compete favourably with top companies.

The total profit ratio for 500 companies is 5.5%. Some interesting observation were made which include: (1) Top 30 list of 2017 are part of 25% of the top 30 companies in 1998. This shows the level of determination and technological advancement in such companies to meet the needs of the world. They have been able to incorporate proper management skills in their system for proper flow of information to achieve the objectives of the company. (2) Top 30 companies in 1998 were dominated by oil, petroleum, automobile industries and gas. (3) Top 30 list of 2017 contain an increase in companies from retail sector, grocery, insurance technology and healthcare. The healthcare related companies which dominates in 2017 did not appear in top 30 in 1998.

 

State Farm Insurance

State Farm is one of the largest insurance company in America. It’s a large group that provides insurance and financial services in United States. The Headquarters is in Bloomington, Illinois. Providing automobile insurance services is the main business of State Farm Insurance Company. In 2018, it ranked number 36 on the Fortune 500 list.  State Farm is the leading auto insurance provider in the United States. It is also the largest property and casualty insurance provider. State Farm depends on agents to sell insurance. State Farm Insurance major competitors include American Family Insurance Group and American International Group.

 The company is ranked 8th out of 23 insurance companies in Nerd wallets. This ranking depends on the claims of shopping satisfaction. It also considers the consumer’s reports and complaints based on the National Association of Insurances Commissioners. There are minimal complains about the company.

 The company was founded by George J Mecherle on June 22, 1922.  The company has 19,000 agents, 343 claim offices and 30 operation centres. The company receives annual revenue of $87.6 billion. The company has 70,425 employees. The company’s net income was $2.2 billion in 2017.

External Stakeholders

Competition

There are two notable major competitors of State Farm. American Insurance Group is one major competitor of State Farm Insurance Company.  American Insurance has revenue of $8.7 Billion with a net income of 325 Million. It has 11,307 employees. American International Company is also another competitor of State Farm Insurance Company. The company has 49.800 employees. It operates on general insurance, life and retirement. In 2017, it had revenue of $49.52 Billion (Thurber, 2015). Its products are insurance, property casualty, commercial and consumer. The American Insurance Group was ranked 60th on 2018 fortune 500 list. American Insurance Group has a healthy market competition with State Farm Insurance Company.

 State Farm Insurance Company is one of the top companies in the insurance industry. The company has maintained a dominant position through analysing and evaluating the SWOT analysis. State Farm has strengths that enable them to dominate in insurance industry. The company has a well-trained workforce and earning programs for their workers. They have also show remarkable performance in venturing in new markets. The expansion of the company into new markets has increased the company’s revenue. 

Industries

The insurance industry in U.S covers both individuals and commercial in case of loss being suffered in future. The industry covers damages like car crash and theft. The company has two classes: Life insurance and non-life insurance. Non-life insurance covers several branches like car insurance and property. In insurance industry, State Farm is one of the leading insurance companies’ United States.  State Farm Insurance has great abrasion level in the work force. In comparison to supplementary companies in this the insurance industry, State Farm Insurance Company has higher attrition rate and it spend more than its competitors. The organisation invests more on its employees by training and developing them.

Marketing

The company uses technology to enable the agents to sign up for advertising programs. The company utilizes the technology to target marketing to agents’ marketing areas. Internet has proved to be the best marketing area for the company.  Internet covers a wider radius than other means of advertising. In Chicago, the company has 300 agents in the city and suburbs. Each agent is left to do the marketing at his or her own effort in the target area and in areas where there are great sales opportunities. The company expresses themselves as a people-based company doing business with the people. Over the past years, state farm has taken the initiative of developing their employees.

Government Entities

According to the States Constitution Act, the government has enacted rules, laws and policies that insurance companies must adhere to. Since State Farm is an insured company, it runs through the requirements of State Insurance Laws and Regulations. Thus, it is subject to investing. This includes its governing board. The board has the unique job of working among the various laws of different states that impacts the board’s decision making abilities. There should be strict RBC as a requirement by the state. Additionally, the federal government of United States has rules and policies that are enforced on all companies that governs that governing boards must be licensed to carry on their duties (Brown et al 2017).

Different acts within the constitution governs how an insurance companies conduct their day to day operations. According to the constitution, Act 113, the financial stability oversight council should and must consider the degree on regulation of the company by financial regulatory agencies may it be one or more. Section 115 of the constitution also states that the financial stability oversight council should conduct an overall reading of the company’s feasibility, requirements in terms of capital required to a non-bank monetary company. The section 165 of the constitution states that there should be a reporting to the board that is the financial stability oversight council and the FSOC board.

Customers

State Farm Insurance has a high level of customer satisfaction. The company is committed to customer relationship management.  Through effective management the company can not only achieve high customer satisfaction but also maintain it. The company not only focuses on the present customers but also target to impress the potential customers. They build a good brand equity among the potential customers.

In United States of America, there is one car for every five cars on the streets that is covered by State Farm Insurance Company. State Farm is the largest private passage car insurance providers in the United States. The company has agents in place to meet their customers at the convenience of their customers. According to a 2018 consumer survey, 86% of surveyed policy makers recommended State Farm Insurance Company as the 14th ranked insurance provider. (Nerd Wallet, 2018) This gave the company a position with an overall score of 84.76.

Community Association  

 State Farm has a rich history of giving back to the community. The company’s values support construction of faster, stronger and better educated communities. The company has programs and activities that enable people to manage everyday life threats. The company supports education and community empowerment.  They have set up community growth projects, programs and amenities that aid people in recognising their visions. The company display their involvement through disaster preparedness. Rescue programs and services are set up to enable people to recover from the unexpected.

 

Internal Stakeholders:

Management

The insurance company has its current Chief Executive Officer and Chairman as Michael Tipsord. Michael is also the president of State Farm Insurance Company. He runs the company by holding meetings with the Board of Directors to ensure a successful company. Michael was appointed as the Chief Executive Officer and the president of the company and took office on June 13, 2016 after Edward Rust who had worked as the CEO for 29 years. In the same year, he was appointed Chairman of the Board of Directors of the Insurance Company. Michael’s career with State Farm started in 1988. He worked towards making sure the customers’ responsibilities are insured (Farris, Wilson and Farris, 2017).  He also was determined to grow the business by expanding it and making an increase of it in the marketplace. His career started at Illinois Wesleyan University where he was awarded a bachelor’s degree and a degree in law from the University of Illinois at Urbana-Champaign. In the year 1995, he was awarded the chartered property casualty underwriter. He earned the chartered life underwriter and a CPA in 1991.  The State Farm Insurance Company has its main objectives and primary businesses as focusing and dealing with personal insurance lines. 

Board of Directors

The company’s Board of Directors composes of 11 members. The board works on values such as mutual trust and giving services that are of quality to ensure the company becomes successful.

Board Members:

  • Dan Arvizu who is the Technology Officer in Emerson Elemental
  • Christopher Demuth a distinguished member in the board of Hudson Institute
  • Steven Jones a Professor of Organizational Behavior and Strategy in University of North Carolina, Knight a Professor of Law at Seattle University School of Law
  • Allan Landon who was the former Chairman of the Board and Chief Executive Officer at Bank of Hawaii Corporative
  • Gary Perlin also the former Chief Financial Officer of Capital One Financial Corporation Vicki O’Meara the president and Chief Executive Officer of Analytics Pros
  • Paul Stecko the Director, Chief Executive Officer and former Chairman of Packaging Corporation of America, Pamela Strobel the former Executive Vice President and the Chief Administrative Officer of Exelon Corporation
  • John Zeglis who was the formal Chairman of the AT&T Wireless and the Chief Executive Officer of AT&T
  • Michael Tipsord who is the current Chief Executive Officer, President and Chairman at State Farm Insurance Company

Findings to increase competitive advantage

The company’s board created steps to ensure the functional regulation of its insurers are being met to satisfy the combined governing requirements to the set the successfulness of the company (Plummer, Cross and Tofte, 2017). The company also should acknowledge conclusions made by its own staff as it is one of the rules set to govern each insurance company’s discrete corporate mandates. Acknowledgements made are a way of distinguishing the requirements. The company should accept and recognize a functional regulation that is state-based. Additionally, it should also provide regulatory mechanism and a financial mechanism that is appropriate and specifically tailored to deal with managing the risk and ensuring adequacy of the capital of the insurance company.

The framework of insurance supervision should be developed regularly by the National Association of Insurance Commissioners to ensure that the company is complying with legally requirements. The company should work with this board to ensure there is regulatory reporting, transparency and disclosure, examinations in on-site risk, regulation controlling of significant that is risk related transactions. There are preventive and corrective measures that includes enforcement. There are rules set within the insurance company, which are set in addressing risks facing the insurers and customers.

 

 

SWOT Analysis

Limitations

State Farm has limitations that could potential prevent them from reaching their target goals. These are areas where the company is needed to improve on to reach its viable advantage and strategic positioning.

The corporation has failed in integrating firms with diverse cultural works. The company has the ability to integrate small companies but have failed to merge different firms with unlike work cultures. The company has had success in marketing but has hard a challenge in determining its position and creating a unique selling proposition. This has led to attacks from the competitors.

The company’s organization structure is set up to be compatible with the existing business model. The structure limits growth in adjacent product divisions. The productivity ration and net impact of State Farm Insurance is below the industry average. The company has a weak financial planning (Jackie, et al, 2014). The asset ratio and liquid asset ratios currently indicate that the company can utilize the cash more regularly than on the progressing developments.

 State Farm Insurance Company needs to invest more into developed technology for the purpose of technological advancement in relation to the company’s development plan. The company has a plan for more expansion and moving into new geographical areas to venture into new markets. This is development that the organization needs to integrate across the board. For the company to work with its vision, new technology is a necessity.

State Farm Insurance opportunities

The company has the opportunity to expand into new markets and increase its revenues. When the company adopts new technology, the government free trade agreement had provided an opportunity for State farm Insurance Company to venture into new market. An investment opportunity is provided by a stable cash flow. Having more currencies in bank the corporation can invest in modern technologies as well as new invention segments (Binion, et al, 2015). This could be a window of opportunity for State Farm Insurance Company. Stable cash flow influences adjacent product segments.

There are projections of economic out-picks and increased spending of customers. This serves as an opportunity in the industry. In the past the industry has had a slow growth rate and stagnation in growth. State Farm insurance has been presented with an opportunity to capture new customers and rise its market shares.

The new taxation policy is an opportunity to increase profitability for the insurance industry. The policy is set to impact the way of doing business. It also opens up new opportunities for the already established performers resembling State Farm Insurance Company (Tofte, 2015). Presence of new technology enables companies to maintain their loyal customers. For State Farm, they are able to come up with new pricing strategies in the new markets. The loyal customers are served with abundant service while the new clients are taken through other concerned propositions.

Decrease in the cost of transportation is an advantage for State Farm Insurance Company. When the transportation cost decreases due to reduced shipping prices, the products of State Farm will also reduce their cost. It will serve as an opportunity for the company and benefit the customers to gain the market share.

Intimidations of State Farm Insurance

The rising pay level is a pressure on profitability. An example of chine, the increasing prices could lead to solemn pressure on profitability for State Farm Insurance Company. The consumers buying behaviours tend to change with time. Buying from online channel could be a threat to the physical infrastructure. The physical infrastructure is driven by supply chain model. The company is also exposed to several lawsuits in various given markets. There are different laws and continuous variations regarding the product ideals in those markets. The company is set up in different countries. It is exposed to currency fluctuations with the volatile polity climate across countries.

Appendix 

 

References

  • Bowne, B., Peng, J., Baker, N., Marzinzik, D., Riley, E., Christopulos, N., and Thurber, D. (2015). U.S. Patent No. 8,930,229. Washington, DC: U.S. Patent and Trademark Office.
  • Brown, T., Anthony, J. J., Chalfant, S., Gingrave, M., and Vines, B. (2017). U.S. Patent No.9,563,919. Washington, DC: U.S. Patent and Trademark Office.
  • Christensen, S. T., Hayward, G., Gay, C. E., Cielocha, S., and Binion, T. (2015). U.S. Patent No. 9,141,996. Washington, DC: U.S. Patent and Trademark Office.
  • Farris, P. W., Wilson, C., and Farris, P. W. (2017). Progressive Insurance. Darden Business Publishing Cases, 1-12.
  • Freeman, J. M., Schmidgall, R. D., Boyer, P. H., Christopulos, N. U., Maurer, J. D., Tofte, N. L., and Jackie, O. J. I. (2014). U.S. Patent No. 8,872,818. Washington, DC: U.S. Patent and Trademark Office. c life (Vol. 8). University of Oklahoma press. Plummer, B. A., Cross, D., and Tofte, N. L. (2017). U.S. Patent No. 9,633,146. Washington, DC: U.S. Patent and Trademark Office.
  • Tofte, N. L. (2015). U.S. Patent No. 9,002,719. Washington, DC: U.S. Patent and Trademark Office.

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