student will complete a report summarizing all the information they have gathered about the financial intermediary assigned. The report must be limited to 5 pages. Students are asked to use a 12-point

FINANCIAL INTERMEDIARY: FARMERS INSURANCE

Introduction

The Farmers Insurance Group is one of the specialized companies running insurance intermediary that have developed the capability to cater to most of clients’ demands. First, Farmers Insurance was found in 1928 and it is a subsidiary of the Swiss company Zurich Insurance Group. For nearly a century, Zurich's Farmers Insurance Group becomes the third largest insurance group in the United States. It is not hard to see the logo and branches everywhere in California. Second, it offers steep discounts for people with different requirement. Due to Covid-19, to lighten the burden on the car insured, Farmers Insurance Group decided to offer 25% off discount in April, 2020 for each customer who purchased its car insurance. Besides, Farmers Inc also offers great student discounts for both international and local students who owns high GPA. The Farmers Insurance Group has displayed remarkable advantages through its practices so far. Through consistently spiraling revenue and expansion of market shares, Farmers Insurance Group have managed to give full play of its competitive edges and further explore new development directions.

History of Farmers Insurance

Nevertheless, the enlarging scale and increasingly broader business product spectrum of this insurer have set itself into risks. The business types of Farmers Group, Inc go beyond the car insurance and it also provides other insurance like automobiles, homes, small businesses and some financial services products. In the business of financial service insurance, Farmers Group are most afraid of encountering large natural disasters or epidemics. Scratch Restaurants LLC on the April 15th sued its insurer Farmers Group Inc. for coronavirus-related business interruption coverage.

Due to the Covid-19, this restaurant was losing revenue and furloughing 55 workers. (Souter, 2020). Though Farmers Group did not immediately respond to a request for comment so far, based upon past experience, Farmers is likely to lose the case. In 1994, Farmers Insurance was estimated that the losses from the Northridge earthquake alone were $1.3 billion. (Asuda,2020). Multiple, large-scale disasters and epidemics pose high financial challenges to the insurance company. In accordance with financial experiences from other business who have undergone profound disruptions, the current economic environment may be much more challenging but with more opportunities at the same time.

Financial Reports of Farmers Insurance

Since Farmers Insurance is the subsidiary of Zurich Insurance (North America). So, the financial information of Farmers group is integrated in Zurich Insurance’s financial report. In terms of the financial report in Q1 2020, COVID-19 related claims in this year are expected to remain within the Group’s earnings risk tolerance. Experience to date and the Group’s scenario analysis suggest that Property and Casualty claims could total approximately USD 750 million for the full year, of which USD 280 million has been recognized in the first quarter. Gross written premiums in Property & Casualty for the first three months rose 7% on a like-for-like basis, adjusting for currency movements, acquisitions and disposals.

Being suffering from pandemic depression, although Farmers Group has been greatly undermined, the potential direction of restoration has been gradually clear. The corporate endeavor is mostly invested into pursuing its goal, strenuously sticking to the concepts it set out with. Shouldering social responsibilities, the Farmers Group is also required to conduct in-time reactions and modifications to government policy changes. For insurance industry, it is fair to say government policy and regulations continue to have an indispensable impact on it.

During the Covid-19 period, Farmers Group, which are owned by their policyholders, reported a reduction in gross written premiums in the first quarter of 1%. Since Farmers Group offered great discount for their customers to go through the hard time. Underlying growth of 0.4% was offset by an adjustment to previously booked gross premiums relating to lower expected volumes of commercial rideshare business following the issuance of shelter-in-place orders by U.S. state governments in response to the COVID-19 outbreak. However, Farmers group did not pay much attention on the loss of the Q1 2020. It believes that customer satisfaction is much more important. By firmly holding the corporate concept, it is central importance to escalate running efficiency and management performance. Thus, corporate strategy has been progressively switched to employing more personnel of specialized training to concentrate resources on management processes. However, the drawback is also apparent that the input of quality personnel will certainly ramp up the proportion of financial resources into management expenses.

In early 2020, the market coverage rate is increasing. Through the newly opened agent, this is why we can see Farmers Insurance agent stores and signs everywhere. Farmers Life new business sales on an APE basis increased 8% year-on-year driven by increased agent engagement. New business value increased 20% driven by higher sales volumes, positive shifts in the business mix and modeling changes. However, more agents sometimes mean more cost especially in special period. In response to covid-19, Farmers chose to increase the management fees and other related revenues, which increased 13% from the prior year period. Adjusted for the IFRS 15 gross-up of expenses that are fully offset within the expense line and have no impact on FMS’s business operating profit, management fees and other related revenues increased by 2%.

Impact of COVID-19 Pandemic and Countermeasures

In particular as an emerging insurer, the loss caused by COVID-19 pandemic has reduced the Farmers Insurance Group to a financial conundrum where further deficits of risk management and trust crisis might follow. While experts can estimate what the economic fallout from a pandemic such as the coronavirus will be, the precise impact will vary based on how many people are affected, how severely it hits, and which societal interventions are necessary to contain its spread.

Due to the Covid-19, some people are in urgent need of money, and they withdrew 401 (k) retirement funds to solve the current problems. I do not judge the action of taking out the retirement pension now. But we need to carefully consider preparing savings in normal times in case of unemployment or some emergencies. 401k Savings Plan of Farmers Group, Inc. is a defined contribution plan with a profit-sharing component and 401k feature. The Savings Plan currently has over 24,600 active participants and over $3.1B in plan assets. Moreover, the 401k account of Farmers Insurance match up to 6%. (Potter,2019) For 2020, under the CARES Act, withdrawal rules and amounts were relaxed for those affected by COVID-19. However, the rules just benefit those who have the habits to manage their funds and maintaining saving.

  Certainly, specific industries bear the brunt of the damage. Shops and restaurants start to empty out, if not close their doors altogether. Non-essential travel slows down, curtailing revenue for not just airlines and cruise-ship operators, but smaller businesses that rely on tourism revenue. Under the circumstance where business industries have been significantly damaged by the financial depression incurred by pandemic, Farmers Insurance are instantly modifying commercial strategies and struggling to fulfil its commitments. With an intention to relieve people from the COVID-19 depression, Farmers Insurance have managed to play the role with adequate sense of social responsibility.

Farmers Insurance announced they are extending additional relief to customers via a 15% reduction in May auto premiums for drivers with Farmers personal auto policies. （Hills, 2020）. In addition, the insurers are automatically extending coverage, for no additional charge, to customers with Farmers branded personal auto and motorcycle policies who are making food, grocery, pharmacy and medical supply deliveries using their personal vehicles through May 31st. Additionally, for new business and existing customers not currently enrolled in the usage based insurance tool, Signal®, Farmers is continuing to make that program available for drivers to immediately save 5% to 15% on their auto insurance premiums. Signing up for Signal® will allow customers to move their rates toward the risk they represent, over the long term.

Following its previously announced reduction in April personal auto premiums, Farmers estimates customers with Farmers and 21st Century-branded policies will realize an approximate combined savings between $65-$70 in their April and May personal auto premiums on average, and more than $280 million in total savings for customers across the country. These Farmers and 21st Century customers will not need to take any action to receive this new, additional credit. The action in May represented the continuation of the April policy, and it also reflected that Coronavirus is a long-time struggle. Moreover, more than 115,000 Farmers business insurance customers in the restaurant, office, retail and service sectors across the country are receiving a 20% credit on two months of their Business Owners Policy (BOP) premium. The two months of credits to business insurance customers, combined with the announced April and May premium reductions for the aforementioned personal auto customers, will provide approximately $300 million in total customer savings.

  Along with the pandemic depression, delivery services have manifested its merits under currently conditions where interpersonal interactions have been intentionally avoided. With millions of people in the United States and around the world in a virtual lockdown, a ripple effect throughout the economy is inevitable. Social distancing is also encouraged by both the US government and residents. As a consequence, business modes related to frequent interpersonal interactions have declined to a record low point. Instead, delivery and long-distance business modes gradually swept in and effectively filled the gap.

During the Covid-19, the demand for delivery drivers is increasing because more restaurants deliver meals to the growing number of quarantined people. Farmers group, Inc is loosening restrictions on these delivery drivers to provide personal coverage and more health care. Since the drivers may be infected when delivery but they have to earn their life to get through hard financial situation. And the company is temporarily modifying its personal automobile and motorcycle insurance policies to provide applicable coverage for claims arising from the use of these vehicles for delivery of food, groceries, pharmacy and medical supplies. This is Farmers Insurance’s positive responses to the epidemic since standard personal policies typically exclude such health coverage.

  While the economic impact of a given pandemic may not be long-lasting if the underlying cause is contained quickly, the vast spread of COVID-19 means we're likely in for a more protracted downturn. On account of active and productive reactions, Farmers Insurance has also made a tough breakthrough in the dilemma. Accordingly, Farmers Insurance have succeeded to keep the loss and risks under its acceptable measure, which pave the way for restoration in the near future. Nevertheless, the huge damage and interest loss striking the insurer has made it even harder to get through. It is estimated that this year will see a sharp plummet of all business aspects.

Conclusion

While in the modern insurance market, most companies have been undergoing a conundrum and meeting the bottleneck due to an inclusive collection of causes. There are strategic defects in the marketing methods of insurance brokerage companies, such as stuck in sole marketing method. Large insurance brokerage companies mainly rely on shareholders and their connections, and the real business volume obtained by their own marketing advantages is relatively small. Usually those insurance brokerage companies with strong background or shareholder strength can obtain large projects without professional marketing efforts. However, for those small and medium-sized insurance brokerage companies, they don't pay attention to the flexible use of marketing tools, which makes life difficult.

Due to the inadaptability of diversified business model in today 's fierce competition in the insurance market, more and more professionals in the industry have gradually realized the positive significance of specialized business model for the future development of property insurance companies. Farmers Insurance Group practice specialized operation which refers to the concentration of the company's main resources and capabilities for the core business that they are good at, and efforts to facilitate company's growth by focusing on a certain point. Thus, it is the only way for the company to grow. Compared with the way of expanding the business scope to obtain the company's growth, Farmers Insurance’s insistence to the way of focusing on the core business is more worthy of encouragement.

This kind of growth way is more conducive to enhancing the company's core competitiveness and establishing a solid advantage over other companies, so its growth will be healthier, more stable and sustainable. Therefore, Farmers Group is a reliable company capable to make full use of investments and cater to clients demands. The flexible strategies have equipped this company profitability and resilience to restore from crisis and financial damage. The Farmers Insurance Group is expected to manage risks involved in the pandemic. Although strikingly profound loss has undermined its potential and capital for emerging, it is adequately capable to fulfil the expectations of clients and achieve the management upgrade.

References:

1. Ruedi, B. (2020). Zurich Insurance Group. Retrieved

from https://en.wikipedia.org/wiki/Zurich_Insurance_Group

1. Asuda, M. (2020). Farmers Insurance Group. Retrieved from https://en.wikipedia.org/wiki/Farmers_Insurance_Group

2. Souter,G.(2020). Scratch Bar joins list of restaurants suing for coronavirus cover. Retrieved fromhttps://www.businessinsurance.com/article/20200402/NEWS06/912333843/Scratch-Bar-joins-list-of-restaurants-suing-for-coronavirus-cover-Scratch-Restau

3. Potter, L (2019). Farmers Group. Inc. Retrieved

fromhttps://www.brightscope.com/401k-rating/662490/Farmers-Group-Inc/696237/Farmers-Group-Inc-401K-Savings-Plan/

1. Hills, W (2020). Farmers® and 21st Century® Announce Additional Relief for Customers Until June 1. Retrieved

fromhttps://newsroom.farmers.com/2020-04-30-Farmers-R-and-21st-Century-R-Announce-Additional-Relief-for-Customers-Until-June-1

1. Retrieved fromhttps://www.bizjournals.com/phoenix/news/2020/04/01/auto-insurers-loosen-restrictions-on-delivery.html?ana=synd_fc

2. Zurich Q1 update resilient performance while serving customers and protecting colleagues. Retrieved

from https://www.zurich.com/en/media/news-releases/2020/2020-0514-01

1. Zurich Q1 update resilient performance while serving customers and protecting colleagues. Retrieved

from https://www.zurich.com/en/media/news-releases/2020/2020-0514-01

1. Retrieved

from https://www.zurich.com/en/media/news-releases/2020/2020-0514-01