State Farm seeking
entry into banking
It applies to start a federal savings bank
By Rick Daysog
as Hawaii banks prepare
to sell insurance
Star-BulletinTalk about role reversal. State Farm Insurance Co., the state's largest auto insurer and third largest home insurer, wants to enter the nation's banking business, just as Hawaii's largest banks are poised to enter the local insurance market.
State Farm, the nation's largest property and casualty insurer, said it is starting a bank called State Farm Financial Services FSB, capitalizing on the ongoing deregulation of the nation's banking and financial services industries.
The Bloomington, Ill.-based company said it has applied for a federal savings bank charter with the Office of Thrift Supervision. It also plans to seek approval from the Federal Deposit Insurance Corp.
State Farm Financial initially will operate in two yet-to-be determined mainland states but could expand to Hawaii over the long term, said local spokeswoman Carolyn Fujioka.
"It's probably more a question of when and not if" State Farm enters the banking market, she said. "I think many people see this as the wave of the future."
According to Fujioka, State Farm Financial won't operate traditional branches but will offer home mortgages, auto loans and credit cards. It also will provide checking and savings accounts for 68,000 State Farm employees and 17,000 agents initially, Fujioka said. "Obviously, this is a new direction that the company is taking," she said.
The potential entry comes as Hawaii's largest banks have lobbied hard to enter the local insurance market. The state Legislature recently passed a bill that would allow banks to sell and underwrite home and auto insurance policies. That same bill also allowed insurers to offer banking services, Fujioka said.
State Farm's large presence here obviously is a big advantage, allowing it to cross-sell banking products to its customers. State Farm has about 130,000 auto insurance policies in the state, giving it a 25 percent share of the market. In home insurance, it has about 80,000 customers, or a 16.6 percent share of the local homeowners insurance market.
Ironically, State Farm is the second largest shareholder of Bank of Hawaii's parent Pacific Century Financial Corp.
Pacific Century was one of the prime movers behind the state legislation allowing banks to sell insurance. State Farm owns about 1.9 million, or 4.8 percent, of its outstanding common stock.
"Insurance companies are expecting banks to be in the insurance business, and they're expecting insurance companies to be in the banking business," Sean Mooney, an economist for the industry-sponsored Insurance Information Institute, told Bloomberg News. "Some are viewing this as something they need to defend against and others are viewing it as something where they need to be on the offense."
Bloomberg News contributed to this report.
