Closures will begin next year in New Jersey and California.
State Farm’s $7 billion underwriting loss in its auto insurance business continues to reverberate throughout the nation’s largest P&C insurer. Last week, the Illinois-based mutual insurance company announced the phased closure of 11 offices beginning in 2018, which will affect 4,200 workers out of a total workforce of 70,000.
State Farm offices in Parsippany, New Jersey, and Petaluma, California, will be the first to be shuttered. Both locations, according to Bloomberg, have fewer than 60 employees. The next branches to be closed will be the offices in Kalamazoo, Michigan, Irvine; California; and Tulsa, Oklahoma in 2019; Indianapolis, Indiana; Medley, Florida; Downers Grove, Illinois; and West Lafayette, Indiana in 2020; and Bakersfield, California; and Frederick, Maryland in 2012.
Spokesperson Justin Tomczak told Bloomberg that State Farm facilities in Kalamazoo, Tulsa, Bakersfield, and Frederick house more than 500 employees. The company plans to concentrate operations in its headquarters as well as offices in Atlanta, Dallas, and Phoenix. Displaced workers will have the opportunity to transfer to other State Farm locations, the company said.
State Farm’s hub in the Dallas area could accommodate a good portion of those relocating employees. Tomczak told DallasNews.com that the company’s two million square-foot campus in Richardson, where 7,200 employees currently reside, has space for between 8,000 to 10,000 staffers.
According to State Farm’s statement, the company intends to restructure its office network in order to streamline operations and processes while leveraging technology and moving staff into larger locations. “In order to adapt to the changing needs of our customers and continue to provide the remarkable service that our customers expect, we must continue to manage our business efficiently,” Mary Schmidt, State Farm’s EVP and Chief Administrative Officer, said. She added that the company “will continue to have a strong local presence in these communities though our agents and local claims employees.”
Yet the $7 billion hit in its auto insurance line last year — on top of a $4.4 billion loss in 2015 — has no doubt prompted State Farm to undertake these moves. State Farm, however, is not alone in having to cover rising auto claims. Travelers Cos., Geico, and Allstate Corp. also saw payouts skyrocket last year, leading some analysts to predict auto insurers will hike premiums, if they have not done so already.
Auto insurers have been impacted by several trends resulting in those higher claim awards. More drivers have taken to the road in cars outfitted with complex technologies, thus contributing to significantly larger repair costs when crashes occur. In addition, fatalities have risen: the National Safety Council reported 40,200 auto accident deaths in 2016, a 6% increase from 2015.
Some industry executives blame distracted driving caused by drivers using connected devices in their cars for the rise in accidents. “When we look at smartphone ownership statistics and smartphone use and compare that to accident frequency, the correlation is striking,” Allstate President Matt Winter said.
Is Technology the Answer?
In response, auto insurers have looked to technology to improve driver safety and upgrade overall operations. Several insurers like Progressive offer drivers the opportunity to reduce premiums if they install a telematic device in their vehicles. These gadgets monitor the individual’s driving habits with the aim of nudging them toward better road behavior. This technology also enables insurers to process claims faster, price risk (and therefore premiums) more accurately, and reduce fraudulent claims.
As auto insurers grapple with higher claims expenses, agents will play a larger role in helping their clients correct bad road habits so they can lower their premiums. If and when accidents do occur, agents must use the latest technology to expedite claims.