Question

Even organizations as large and successful as State Farm Insurance have to plan for the future. Without planning, strategies can become obsolete as the environment changes, and organizations can miss opportunities for growth. In short, an organization without adequate planning has no sense of direction or purpose and risks becoming mired in the present or the past. For State Farm, planning involved helping customers plan for their future.

State Farm has been a leader in the highly competitive insurance industry for more than   80 years. The company, proclaimed in its ads as being “like a good neighbor,” has been at the forefront of insuring customer liabilities. With 16,000 exclusive insurance agents across the United States, State Farm management believed it had a perfect opportunity to add more financial services. The deregulation of the banking industry in 1999 and the explosion of the Internet paved the way to achieving this goal. Today, State Farm Bank offers traditional services like loans and deposit accounts, but without actual bank buildings and at lower fees. Clients can do every typical banking transaction either on-line, over the telephone via State Farm’s 24/7 call center, through ATM machines, or through the same agents that sell the company’s insurance products.

State Farm’s move into banking was no simple matter. To protect consumers, it has had to meet requirements keeping the line between insurance and banking very clear. The State Farm insurance company provides insurance products and services and is required by law to be separate from the State Farm banking company that offers loans and deposit instruments. The State Farm mutual fund organization is yet another separate entity providing mutual funds through agents. Since State Farm mixes multiple businesses, it doesn’t have the same flexibility as traditional banks. For example, State Farm Bank doesn’t provide loans directly through automobile dealerships. It is subject to federal banking laws rather than state laws because it is technically a thrift institution, a category that includes savings banks and savings and loan organizations.  

Diversifying into different businesses is creating new opportunities for State Farm, and banking services is natural fit. Agents find that their insurance review is the perfect opportunity to bring up the topic of financial services and to make customers aware of  their company’s available services. Now when clients buy a new car or change insurance coverage, an agent can offer to help them with the loan; it’s a natural to talk about auto insurance and auto financing. Perhaps the best example of the flexibility State Farm can offer customers is found in the aftermath of Hurricane Katrina. Customers with mortgages through State Farm Bank received two 90-day extensions on loan payments. State Farm also forgave the interest on credit cards and allowed customers to miss payments for a period of time.

For now, State Farm Bank is focused on growing the business among current customers and adding new ones as clients refer friends and relatives. A unique bank with tremendous resources, State Farm Bank sees excellent opportunities to expand business beyond retail customers.

Summary: State Farm Bank resulted from the insurance company’s plan to diversify into the financial services sector. With more than 16,000 agents selling insurance products nationwide, moving into banking services was a natural fit, though not a simple transition. Now when State Farm agents talk to customers about homeowner or auto insurance they can also discuss financing options. State Farm Bank presents tremendous growth opportunities for State Farm.

Why is planning important for organizations like State Farm?

What kind of diversification took place when State Farm entered the banking field?

How does State Farm differentiate its banking services from those of its competitors?

Answer 1

1. A company's goals are determined by planning. It is is required to pave the path for the company in the forward direction. Changes in the external environemnt would adversely affect the company and strategies would become haphazard if there were to be no planning.It is essential so that organizations don't miss opportunities for growth.

2. State Farm diversified into a related field as it used to sell insurance products before. It relied upon its existing database and network of agents and resources to create a sound synergy with services related to financial matters.

3.State Farm try to stand out and differentiate themselves from their competitors. They refrain from selling their financial services via the traditional banking method opted by other companies. On the other hand, services are sold through their agents, the 24/7 call center, and the Internet, and they charge a lower fee than their competitors.