State Farm’s future unclear

Local insurance agency is included in a corporate consolidation study.
Friday, September 12, 2003 | 12:00 a.m. CDT; updated 4:11 a.m. CDT, Sunday, July 20, 2008

Like a good neighbor, they’ve always been there.

State Farm Insurance has had a home in Columbia for nearly half a century. The nation’s largest insurer, which opened its first office in Columbia in 1956, now employs 785 people at the company’s Missouri operations center at 4700 South Providence Road.

But State Farm’s future in Columbia is suddenly uncertain. The company has initiated a “top to bottom” examination of its operations in three states, including Missouri. Most of the speculation about the so-called “facilities review” in Columbia has centered on a possible merger of State Farm’s Missouri and Tulsa, Okla., locations. Tara Eubanks, a local State Farm public affairs specialist, acknowledged that there has been “a pretty bad rumor mill” about State Farm’s plans.

“But, as far as definite plans to consolidate the Missouri and Tulsa locations,” she said, “that is not true.”

Nonetheless, consolidation has been a centerpiece of State Farm’s strategy to overcome recent financial losses that are unprecedented in the company’s 81-year history. State Farm lost $5 billion in 2001. Last year, it reported $2.8 billion in losses, most of which were attributed to “adverse investment results in both the bond and equity markets,” according to the company’s annual report.

Thomas Meedson, an analyst with Connecticut-based Conning Research and Consulting, an insurance research and publications firm, said State Farm is not the only insurance company that has suffered from poor returns on its investments.

“Rarely does anything in the insurance industry happen to just one company,” Meedson said. “These companies move in groups.”

Meedson believes State Farm and other insurers are struggling with the post-Sept 11 world, which has been especially difficult for property and casualty insurers, while dealing with the normal ebbs and flows of the life-insurance business.

“It’s a whole new business for those in the (property and casualty) crowd, and life insurers aren’t exactly riding high,” Meedson said. “You look at State Farm — they’re a little bit of both.”

Two years ago, in an effort to stem the flow of red ink, State Farm launched a massive reorganization. It consolidated 26 regional offices into 13 “operating zones,” reduced its 10 long-term care insurance offices to two, and, according to a press release, “combined many of the operations that support State Farm agents’ relationships with customers into a single office.”

State Farm has also used a handful of other cost-cutting measures, including early retirement for selected workers, shifting nearly 17,000 salaried employees to hourly positions and restricting new homeowner’s policies in 20 states. In March, State Farm announced a consolidation plan that, over the next several years, will result in the relocation of more than 1,500 jobs in 10 states.

The moves have apparently helped State Farm’s bottom line. After cutting its losses nearly in half in 2002, the company reported a $500 million profit for the first quarter of this year. Edward Rust, State Farm CEO, told a group of business professionals in May that State Farm’s return to profitability can be attributed to several factors.

“We slowed growth down, which we needed to do, and we made significant rate increases to reflect the rising cost of repairing cars and homes and higher medical costs,” Rust said.

While State Farm finds itself in a profitable position for a change, it seems likely the company will continue to aggressively cut costs. Reviews like the one now under way in Columbia are aimed at ensuring the use of “technology, processes, staffing and facilities in a cost-effective manner,” said company spokesperson Gary Stephenson.

Although the net loss of jobs resulting from State Farm’s cost-cutting measures has, so far, been minimal, such reviews often lead to the merger of two or more of State Farm’s functioning operations centers. While it is not yet known how the review will impact the company’s operations in Columbia, Tulsa and Monroe, La., any decision to consolidate will most likely result in both a “reduction” and “redistribution” of jobs, Stephenson said.

Stephenson declined to speculate about possible scenarios that could result from the review of its Missouri operations center. “It is not known at this time, as to what extent the three current operations center will be affected,” he said.

For Columbia Chamber of Commerce President Don Laird, it is simply a matter of waiting.

“Clearly, this is something internal that the company has to work out,” Laird said. “Right now, it is important to just wait before making any assumptions.”

Laird appreciates State Farm, the city’s 10th largest employer, as much for its economic contribution to Columbia as for its charitable endeavors. The company has lived up to the good neighbor reputation, helping organizations such as the American Cancer Society Relay for Life and Columbia Public Schools. And like any good neighbor, Laird would hate to see them leave.

“State Farm is a great organization,” he said, “and the type of employer that is good for Columbia.”

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