Borne out of an ingenuitive idea and a loan from Bank of America founder Amadeo Giannini in 1927, Farmers Insurance Group began as a small company, retaining only four employees. Co-founders John C. Tyler and Thomas E. Leavy believed that by focusing on insuring farmers and other people living in rural areas where traffic and accidents occur significantly less frequently than in urban areas, they could lower their insurance rates substantially. In March of 1928 this idea came to realization as Farmers Automobile Inter-Insurance Exchange was opened to the general public, and two days later secured their first customer.

In the next 50 years Farmers Insurance Exchange underwent rapid and extensive growth, launching both truck and fire insurance subsidiaries and acquiring Mid-Century Insurance Company as well as New World Life Insurance Company, exponentially increasing their coverage to include marine, plate glass, personal lines, burglary, fire, truck, and felony, among others. In 1988, while Farmers Insurance Exchange was the third-largest auto insurance in the United States, and seventh-largest in the world, the company was purchased for $5.2 billion by a subsidiary of the British conglomerate, B.A.T. Industries Plc.

In 1995 Farmers is forced to restructure its business model by reorganizing its core business operations into several separate divisions after the massive financial losses inflicted by natural disasters from 1989 to 1994, including the 1991 Oakland fire, and the 1989 San Francisco earthquake which affected a substantial percentage of their customer base. Following this, in October of 1997, Switzerland's Zurich Insurance Company agreed to pay over $18 billion for the acquisition of the financial services branch of B.A.T. Industries Plc, including Farmers Insurance Group.

Since 2000, Farmers Insurance Group has been enjoying a period of solid growth through the consolidation and simplification of Zurich Insurance Company's structure, Farmer's Financial Solutions registering with the U.S. Securities and Exchange Commission as a broker-dealer, and the acquisition of AIG Auto Insurance Company and 21st Century Insurance for $1.9 billion.