State Farm Insurance SWOT Analysis
State Farm Insurance accident, property and casualty insurer in the United States and has a strong position in the market of United States. The company holds approximately 9.7% of the market share and by revenue is known to be the second largest insurer.
State Farm Insurance is the leading provider of homeowner multiple venture and private passenger auto insurance. It is estimated that the company had more than 17,000 agents at the end of year 2006.
State Farm Insurance has a license to work in all the 50 states in US and has policyholders in about 46 states.
The net worth of State Farm Insurance as estimated on the end of financial year 2006 $63.1 bn, accumulated at 8.6% of the previous year. After that the company’s net worth has grown at a CAGR of approximately 12% till year 2007.
Because of such a remarkable performance over the years, the company has received strong ratings from different rating agencies. All these tell about the effective strategies and policies of the company which are its greatest strengths.
One of the weaknesses of State Farm Insurance is its Geographic concentration in the US and Canada. State Farm Insurance does not have any momentous operations outside these two countries. In North American State Farm Insurance have several combative disadvantages as the competitors there are targeting the newly emerging markets more.
State Farm Insurance, in spite of its strong business position has a slow top line management. During the year 2007, the revenues increased only 1.8% in the business. Over the years 2005-2007, the revenue CAGR was about 2.0%. The growth of the company has been very slow, especially the property and casualty insurances grew only at a CAGR of 1.5% over the five years 2003-2007.
US have a large population of baby boomers and most of them have now reached a retirement age. This gives the opportunity to seize this new market and can add greatly to its revenues. About seventy eight million baby boomers have reached retirement. The retirements insurance and pension policies etc are expected to grow even more over the next few years.
The US property and Casualty insurance market are highly competitive with a number of large institutes fighting to be the market leader and have the largest market share. State Farm Insurance also faces threats from global companies like AIG and large national players like Allstate.
State Farm is ranked 12th in the life insurance segment by direct premiums and faces serious competition from many large national as well as international firms. Another competitive threat is the international presence and large market share of State Farm’s top competitor, AIG.
Certain new regulations have been introduced by the government that the auto insurance will be based on driver’s safety record, mileage driven and years of experience in driving. This has resulted in reduction of car insurance rates greatly. State Farm Insurance also had to cut its insurance rates that resulted in $1.2 bn reduction in underwriting income.