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State Farm CEO Offers Workforce Reassurance And Musings On Tech Change

After a year plus at the helm of State Farm Insurance, CEO Michael Tipsord took his act public in McLean County with a guided q and a at an Economic Development Council dinner. Tipsord repeated what his predecessor, now retired Chairman Ed Rust Junior said often in his closing years.

"The corporate headquarters of State Farm Mutual Automobile Insurance Company will remain in Bloomington-Normal," said Tipsord.

Tipsord said State Farm employment will remain fairly steady, around the fifteen thousand level of workforce in central Illinois for the foreseeable future.

He also again unpacked the philosophy of the new hub system. It attempts to address skilled labor shortages in smaller cities that had served as regional headquarters by concentrating jobs in large metro areas; Dallas, Atlanta, and Phoenix where State Farm already had a sizeable presence. Roughly speaking, Tipsord said State Farm has and will have fifteen thousand workers in Bloomington-Normal, and about ten thousand a piece in Phoenix, Dallas, and Atlanta.

And he said there's another workforce issue the hub system addresses, it's supposed to limit a certain kind of employee attrition more common before.

"In our organization, people had to change locations. They lived in multiple spots, multiple geographies because we were a twenty seven or so regional office operation at the  time and the divisions were even a multiple of that. And what I observed was this disruption of families by having people move. And I stepped back and asked is that necessary going forward? Or can we afford people a career opportunity in a single location? So that was part of the thinking," said Tipsord.

This has economic consequences in the velocity of the housing markets. But, apart from realtors' glum faces in cities where job transfers no longer happen every few years and houses don't turn over as fast, Tipsord said, there is a cost to the company.

"Now we lose something when we do that because people benefited from the diversity of those geographical experiences when they lived in all those locations. We have to find ways to compensate for that. But, we're working to do that as well," said Tipsord.

At the hub locations, State Farm faces more competition from other large employees than it did in smaller towns. To keep workers, the company had to do what it did in Bloomington a couple generations ago, offer family friendly one-stop community. Tipsord said the phrase is "Live, work, and play."  

"And so we're observing is a congregation of additional facilities that are surrounding these hub locations. And so it's playing out as we had hoped," said Tipsord.

Unlike the suburban environment of the twin cities, large metro areas tend to have compact sub communities with nearby mass transit, shopping connected to dwelling, amenities and education all clustered together almost as in the old company towns of the mid to late nineteenth century, though far less cloistered because of better transportation.

"I wouldn't say it's the wave of the future, it's the wave of the present. So when you see other organizations you see very similar approaches that they are undertaking in terms of the environments that they create for their employee force," said Tipsord.

Indeed, State Farm, Toyota, and J.P. Morgan Chase have together put up five million square feet of new office space in the north Dallas area based on the same model. This raises the question, is the supply bottleneck for educated qualified workers essentially the same as in small markets adjusted for a matter of scale? Is State Farm finding the skilled workers it needs in places like Phoenix where it could not ,in the smaller two thousand worker pods in a couple dozen towns across the U.S.?

"Yes we are," said Tipsord.

Part of what has made the hub system practical for State Farm is technology. Computers and communication that allow face to face video talk across the nation and high speed data transfers that have made faxes seem like the Pony Express.

Tipsord acknowledged technology advancement will keep on affecting the insurance business.

In addition, the regulatory environment, sources of labor, and competitive pressures as other providers make moves, cloud the crystal ball. Particularly useful, Tipsord said, was the theme of the last World Economic Forum in Davos Swizerland; 'the fourth industrial revolution.' It's being sparked by the convergence of multiple technologies such as global hyper connectivity, three-d printing, machine learning AI, medical and wearable tech, the internet of things, and advanced sensor tech.

"And one of the things I took away from this one in particular was the cognitive computing capabilities that are coming and the displacement of work in a different way than what it has been in the past," said Tipsord.

In the twentieth century, macro-trends such as the growth of the interstate highway system, the baby boom, and soaring home ownership all helped State Farm.

Tipsord said the next set of macro trends: urbanization, the shared and sharing economy, changing demographics and notions of family, and renting versus owning, all complicate analysis.

Even sticking with just the single issue of autonomous vehicles does not help clarify the picture. He said the notion of adoption is very interesting. He thinks most people will at the end want some human to have final say in a crisis.

Another barrier to acceptance is what will be the standard of accuracy required for the technology?

"There was a horrific accident involving a Tesla vehicle that was in the self-driving scenario. Just a horrific horrific accident. But, it gave us an opportunity as to what's the standard is going to be. I would argue if technology is better than the alternative, the driver, then you should be in favor of the technology. But, what I saw in the post accident event debate was looking for perfection associated with technology. And think about where that goes because I don't think we ever get there if that's what the standard is," said Tipsord.

After the  public session Tipsord talked with reporters about how technology will disrupt what State Farm does.

Tipsord: "Disruption has a consequence in terms of how we actually bring the service to our customers. It has a consequence in terms of the ways in which customers are actually being served over time," said Tipsord

Schlenker: "It could result in a decrease though...autonomous cars, urbanization, fewer people driving. Have you gamed out a range of the decrease in drivers in the U.S., the decrease in the number of car owners over the next generation or two?"

Tipsord: Not over the next generation or two. We look at what the results are in the immediate term. And we look at what that is and you actually see more drivers now than there were ten years ago. You see more miles driven than there have ever been, is the environment we see today," said Tipsord

Schlenker: "And that's based on low gas prices and?"

Tipsord: "I suspect that part of it is the cost of the fuel and the cost of the transportation," said Tipsord

Schlenker: "What do you think then will happen in the near but not exactly foreseeable future? You alluded to a decrease in drivers, but do you have any sense of that?"

Tipsord: "I think that what we should be prepared for as an organization and as an industry, that the per unit revenue for automobile insurance will not increase at the rate it has in the past and has the potential to decline. But, that's on a per unit basis. The aggregate number of units has yet to be determined," said Tipsord.

Indeed, some urban planners foresee falling individual auto ownership rates and fewer garages as fleets of occasionally rented vehicles become more common. Tipsord said the timing of adoption of autonomous vehicles and the rate of change is not precise at all.

"Sixty percent of our revenue is attributable to automobile insurance right now. So, if automobile insurance goes away that's a big issue for our organization. Now, I don't see that happening in the immediate future. I think an aspect of all of this is other lines of business are going to matter more. Homeowners is going to matter more," said Tipsord.

Tipsord said all the tech developments will be common to all competitors in property and casualty insurance. Companies will have to do something more to differentiate themselves.  Tipsord said he believes adding a human element on top of the digital layer will make a difference. And there, he said, State Farm does very well indeed.

"I like our chances, as an organization" said Tipsord.

Hear Tipsord's talk.

WGLT News Director Charlie Schlenker grew up in Rock Island and graduated from Augustana College. He has spent more than three decades in radio.