State Farm Bets on AI to Take Back Number One

State Farm is rebuilding its agent model around artificial intelligence after losing a title it held since World War II.

CEO Jon Farney told the insurer’s 19,000 sales agents at a Las Vegas convention last month that their existing contracts were being replaced. Any agent staying past 2027 must sign a new deal tied to revised sales targets and a mandate to use AI daily, The Wall Street Journal reported.

The pressure is measurable. S&P Global Market Intelligence found that Progressive this year dethroned State Farm as the nation’s largest personal auto insurer, a ranking it had held since World War II. Progressive sells more than half its personal auto policies directly to consumers, using technology to keep acquisition costs low.

“State Farm is under pressure to meet customers’ needs that we cannot and should not ignore,” an internal State Farm document reviewed by the Journal said. “We have a finite window to change.”

AI in Every Agent’s Hands

State Farm’s “Next Gen Good Neighbor” initiative puts AI tools directly in agents’ hands, with OpenAI as a named partner, the company detailed in May. Navi, an AI assistant embedded in the agent management platform, gives agents faster access to quotes and policy details and will soon generate customer insight lists and check quote statuses.

Household Story, a second tool, delivers real-time summaries of each customer household’s active concerns alongside tailored product recommendations, so agents walk into conversations already briefed. State Farm is also piloting an AI virtual assistant for customers reporting auto losses, per an internal convention recap the Journal reviewed.

The new contract raises the cap on offices an agent can operate from three to six. Larger books, supported by the AI layer, are how State Farm expects agents to serve more customers without proportional cost increases.

Allstate is running a parallel experiment. CEO Tom Wilson told analysts on the company’s first-quarter 2026 earnings call that an AI direct sales initiative is already closing policies in three states. “AI can also just sell directly,” Wilson said.

State Farm Rewrites the Agent Deal

The AI buildout comes with a reworked compensation structure. State Farm is ending the Annual Investment Payment Program, a deferred compensation plan that WGLT reported paid qualifying agents roughly 5% of prior-year production earnings across auto, fire, and health lines for up to 20 years. The new model shifts commission weight toward new business and investment product sales, lines more profitable for the insurer than standard home and auto renewals. Agents who miss sales targets for two consecutive years earn lower commissions, per internal documents the Journal reviewed.

State Farm’s state-approved rates have risen 38% for auto and 37% for home since 2021, trailing industry averages of 41% and 51% over the same period, S&P found. “We can’t keep passing cost increases onto our customers at the rate that we have been,” Farney told agents. “That includes the cost of our agency distribution model.”

The company calls the restructuring a move toward consistency. “One consistent compensation structure across agents provides clarity and gives State Farm flexibility to adapt as customer needs evolve,” it said. Agents who don’t sign the new deal can apply through Sept. 30 for an exit payment between $50,000 and $300,000, payable at State Farm’s discretion.

State Farm’s push reflects a broader industry reset. PYMNTS reported that insurance quoting has moved into the AI conversation layer, with customers now getting price estimates without a broker or a separate website.

Large insurers pulling back from AI liability risk has opened space for startups to step in, PYMNTS noted, accelerating how coverage is priced, sold and distributed.

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