Individual organizational analysis with State Farm - Essay Example

? Individual organizational analysis with Farm Individual organizational analysis with Farm Industry analysisState Farm is a major player in the United States insurance industry having established in 1922 by George Mecherle as a pioneer automobile insurance company owned by a group of policyholders. The motivation for establishing this firm arose from the problems that farmers in the country were encountering. Throughout the years, the company expanded its range of insurance services from automobile insurance to banking and other financial services. By 2012, State Farm had over 15 subsidiary companies operating in different areas of the industry including life insurance, accident insurance, mutual funds, general insurance, home and commercial management among other key sectors within the United States insurance industry (Parrino & Kidwell, 2009). The United States insurance industry is characterized by a number of key dominant features that determine the nature of competition, entry of new players, nature of competition and the overall cost of insurance cover. The establishment of the insurance industry seeks to cover the occurrence of loss and damage arising from any unforeseen event, which is within the insurance cover. Insurance industries seek to indemnify the insured and restore their initial economic status before the risk upon which the cover is based caused damage. State Farm developed insurance covers for farm automobile and inputs at a time when the United States farmers had no insurance or protection against damage and destruction of their farm machines (Parrino & Kidwell, 2009). Insurance industry is one of the most regulated industries in the world due to the dynamics of its trade and the stakes involved in covering people against a risk whose occurrence cannot be estimated. As an insurance company operating in the United States, State Farm is subjected to two levels of regulation whereby it is under the regulation of Illinois state commissioner of insurance because the company is based in Bloomington, Illinois. The development of state regulation in the United States began in the 19th century in New Hampshire and spread to other states in the country. However, State insurance and mutual companies operate under independent regulation without significant influence from the federal government. This precedent was set after the Paul v. Virginia case in which the power of the state to regulate state based insurance and mutual companies was challenged (Grace & Klein, 2009). Major industry players characterizing the mutual and insurance sector in United States have massive global influence and market dominance. This results into increased competition between well-established insurance and mutual companies like State Farm and other small scale and state based industry players. As a mutual industry player, State Farm provides impetus for economic growth by holding trust and providing funds for economic growth and development. The development of life insurance and other human based mutual services have changed the societal view of the industry as a whole. From an industry that was once viewed with skepticism, the insurance industry has attracted significant societal support due to the values it adds to insured individuals (Turner, 2005). Technological craze has created significant impacts in major industries in the United States economy including the insurance and mutual industries. Competition is currently defined by the ability of an organization to integrate proper information technology systems into its operations as a way of increasing efficiency and accuracy. Insurance companies are currency deploying significant technological tools in the operations such as the use of mobile technology, cloud computing and interactive web 2.0 to integrate its customer service and ensure proper service delivery. It is estimated that the insurance industry in the United States spent over $40.6 billion in 2012 in information technology services and products with an aim of improving service delivery and efficiency (Grace & Klein, 2009). Competition in the industry Competition within any industry creates a room for the industry players to repackage their services with an aim of increasing its market influence and control. The united states insurance industry has a number of players that compete for the available market with State Farm mutual and insurance company. These include the American family insurance, American automobile association, which is considered as one of the major competitor to State Farm insurance company and Amica mutual insurance Company among other. Increased competition and the entry of new players into the industry have resulted into decreased insurance premiums making it affordable to low class citizens to afford insurance cover. This has resulted into an increase in the overall risks insured in the country, a trend that depicts a positive economic development in the country. Within the insurance industry, premium rates and the level of competition are some of the key driving forces to its growth and determine the overall growth of overall risks insured (Turner, 2005). With the current high competition, few insurance companies with shrewd executives manage to progress and stand out as major industry players. As a country with a large number of state, national and global insurance companies that cover the same risks, success is limited to the approaches adopted by one specific company. State Farm insurance company has grown to operate a large number of subsidiaries in different states in the United States, illustrating its enormous success within the industry. However, other insurance companies like the American insurance group of companies (AIG) have grown into a global multinational that has its operations both within the country and in all other continents. It is considered as one of the most successful insurance companies in the United States with a major customer base as compared to others (Turner, 2005). Competitive success in future wills determine by a number of factors both external and internal to an organization, which will determine their ability to develop products custom made for the vibrant market. An increase in the range of risks covered by an insurance company and the nature of mutual held by mutual organizations will influence the competitive success. Insurance companies will have to develop insurance covers for new and emerging risks like terrorism, Hurricanes, cyclones and other natural events whose occurrence cannot be foreseen (Grace & Klein, 2009). The extent of embracing technological applications and communication approaches will also determine the competitive position held by a particular company. Thus, interaction with customers, claim making, registering the occurrence of risk, choosing mutual nature of choice and the life assurance will move from person based to technological and web based applications. Therefore, the success of an organization will thus depend on its ability to embrace any of these technological applications and remodel their services to fit the 21st century (Turner, 2005). Current strategies With the current competition, State Farm insurance has adopted a number of strategies to enable it retain its current customers as it attract more. One of the strategies adopted by the company is the development of a sound communication platform that has enabled the company to interact with its customers at different levels. According to the director of communication Kelly Thul, State Farm has adopted a communication approach that has enabled it to communicate effectively with its agents, employees, customers and potential customers (Nureni, Olufemi & Abideen, 2011). Social media has provided the company with a better platform for cheap, fast and effective communication, which has contributed to its success. To enhance this, the company entered into a strategic partnership with a social media company to develop an interactive platform for its agents and executives. The company currently publishes its services in YouTube to reach out to its potential customers all over the world (Mirel, 2005). State built a business-to-business website portal to enhance its communication services and reach out to more customers across the world. Through this portal, the company communicates with its external partners, subsidiaries and agents within the United States and beyond. This portal has increased the exchange of information between the central office and the subsidiaries found in different parts of the country. The 2012 financial year marked the 90th year of operation for State Farm insurance company and the company posted impressive returns from its investments. Despite the current competition in the sector, the company has remained profitable with a total asset value of $114 billion in 2012 financial year. The net income in the 2012 financial year stood at an impressive $1,525 billion, a value way above its main competitor Geico insurance (Nureni, Olufemi & Abideen, 2011). State Farm value diversity and considers it as a major source of experience, skills and rich perspectives that can influence its success and growth. As a company that uses the agent model, the company embraces diversity and serves all its customers with due respect, consideration and diligence irrespective of race and religion. Within their inclusion policy, the company continues to respect the dimensional diversity of all its agents and continues to treat their input with due consideration. The company has established a strong code of conduct that defines the general behavior of all employees and the management team. The choices made by all the employees and executives are abiding to others as they are made with integrity, honesty and trustworthiness (Turner, 2005). State Farm SWOT analysis Strengths State Farm insurance company enjoys significant market control due to the position of its subsidiaries and the history that it has established with its customers. This one of the main strengths of the company and has enabled it to grow into a major market player in the industry. It is currently categorized among the top ten global insurance business companies with a strong revenue base that enables it to fund its different projects. It was ranked 37th in the fortune 500 global business report of 2011 among the 500 global business classified. The investment philosophy and approach of the company has thrust the company way above its key competitors in the United States including the Vanguard group of insurance. As a leading insurance company in the industry, State Farm enjoys higher recognition and respects that enables it to attract more clients and retain its market base (Mirel, 2005). State Farm has also developed a brand that is recognized by customers as illustrated by a number of surveys conducted in the country. This has given the company a competitive advantage as compared to other key players in the industry. The company has a tradition of handling claims effectively and providing its long-term customers with cost reducing incentives. Weaknesses The decision of State Farm to venture into mutual business opened new business frontiers for the company but also limited its ability to raise capital. As a company owned by policy holders, State Farm is significantly inhibited from raising investments due to a clouded operation practice. This limits its capital-raising program to stock sales and business within the bourse as compared to other market competitors who have unrestricted ability to raise capital (Nureni, Olufemi & Abideen, 2011). The company has faced a tremendous decline in its financial flexibility and strength since 200 financial years. This is attributed to the change in market structure, competition and the entry of new players with the same product as state farm. This has continued to expose the company to more business risks, which gives its competitors an edge over it. Opportunities The enactment of the terrorism risk act opened new opportunities for State Farm as the company can adequately establish property and casualty coverage scheme that arise due to terrorism activities. The united states also have a higher ratio of an aging population that will sure require more insurance cover thus providing investment opportunities for the company. an increase in the life expectancy and growth in the total population of the aged calls for more health insurance programs which the company can fully exploit and make significant profits from. The growth in global proper is expected to increase by 2015 and this will open new opportunities for the company to provide a wide range of property cover services. Threat As part of its growth program, the company increased its overall risk cover to include natural calamity risks such as Katrina and the cyclones. However, natural calamities have been on a rising trend in the recent past, which has increased the number of claims to the business. Natural calamities also affect a large number of the insured at the same time resulting into a high number of claims at a given time (Mirel, 2005). The weakening economic prospects of the United States have continued to decrease the overall investor confidence in the insurance companies. This has also affected State Farm insurance thus reducing its overall capital base and investment muscles in the market. Alternative strategic approaches and recommendation With the current competitions in the market, the adoption of sound strategies defines the success of a company especially in the insurance industry. State Farm has achieved great success this far as a result of its approaches and strategies that seeks to blend with the events within the market. However, to remain relevant in the face of the current competition, State Farm should adopt a customer-centered strategy that seeks to increase customer satisfaction. To identify the different concerns of the customers, the company should organize regular open days for interaction with the current and prospective customers. From this, the company can be able to gauge the overall view of the customers and act on their different concerns (Nureni, Olufemi & Abideen, 2011). The company has developed into one major insurance and mutual company in the United States with a great pool of loyal customers thus giving it a strong market backing. However, the participation in mutual business restricts its investment opportunities and restrains its financial source to stock and the sale of shares. The company should improve its financial and credit services especially targeting its traditional customers as this will broaden its source of revenue and cushion it from loss during economic meltdowns (Turner, 2005). References Grace, M. F., & Klein, R. W. (2009). The future of insurance regulation in the United States. Washington, D.C.: Brookings Institution Press. Mirel, L. (2005). Is Federal Regulation Of Insurance Inevitable?" The Metropolitan corporate Counsel Retrieved from http://www.metrocorpcounsel.com/articles/6009/federal-regulation-insurance-inevitable Nureni, A., Olufemi, A. & Abideen, T. (2011). Impact of strategic planning on the performance of insurance companies. European journal of humanities and social sciences, 5(1), 136-152. Parrino, R., & Kidwell, D. S. (2009). Fundamentals of corporate finance. Hoboken, NJ: John Wiley and Sons. Turner, T. N. (2005). Vault guide to the top insurance employers. East Longmeadow, MA: Vault Inc. Read More