In Texas, the second largest US auto insurance market, State Farm policies rose 4% in just seven months after rates fell 12.4%.
Crain’s researched the state farm’s auto policies in 14 major states after their price cuts. Overall, politics in these states grew by 3%. In many cases, however, the interval between the reductions and the last report by the insurer was less than a year. In six countries where political differences could be tracked for more than a year, aggregate growth exceeded 5%.
These six states – Pennsylvania, New York, Michigan, Connecticut, South Carolina, and Arizona – accounted for 18% of total US auto awards in 2020. Texas alone made up an additional 9%.
The question now is whether State Farm will hold the line even if its main rivals – Allstate, Geico and Progressive – raise rates in response to rapidly rising inflationary pressures that have resulted in underwriting losses.
State Farm’s once dominant auto insurance market share has steadily declined over the past four years. What had been a reliable share of more than 18% of US premiums for more than a decade fell to 17% in 2018 and 16% in 2019, according to the National Association of Insurance Commissioners.
State Farm’s market share has always been important. Prior to the pandemic, Geico, of Chevy Chase, Maryland, was well on its way to overtaking the state farm as early as next year. (Geico’s 2020 market share was 13.6%, while State Farm’s was 16.2%.) A State Farm spokeswoman said in early 2020 that the company had “no intention of leaving our leadership position.”
COVID may have given the state farm a chance to hold onto its crown – or at least delay the succession. As a mutual insurance company technically owned by its policyholders, State Farm does not have to respond to shareholder pressure when markets fluctuate and profits temporarily disappear. Its capital position is remarkably strong, so it can afford to absorb losses for a year or two if it chooses.
“With car tariffs, our approach remains the same – making incremental adjustments based on driving behavior to ensure that the tariffs we apply reflect the expected volume of traffic and damage and minimize the impact on customers,” said spokeswoman Angie Harrier says in an email. “We are unable to speculate about future interest rate adjustments. Even with the most recent adjustments, the state farm’s car rates remain below pre-COVID-19 levels, despite an increase in kilometers driven and damage volume.
She says the company will have more to say in its annual report in late February.
While the State Farm’s improved political growth in Bloomington is likely to be cause for joy, it is still lagging behind the faster-growing progressive based in the Cleveland suburbs. As of September 30, Progressive’s auto policies were 8% higher than at the same time in 2020, according to a filing by the Securities & Exchange Commission.
Geico, on the other hand, has stalled. Parent company Berkshire Hathaway reported Geico growth of just 159,000 policies, or about 1%, in the first three quarters of 2021. Allstate brand auto policies were roughly unchanged year over year.
Allstate is increasing rates by a high single-digit percentage in virtually every state, company executives said to analysts last month. Progressive is ahead, raising rates an average of 6% in 20 states in the third quarter, according to a Nov. 22nd Goldman Sachs report.
If State Farm doesn’t follow suit, “it will have a negative impact on everyone else,” said Brett Horn, an analyst at Morningstar in Chicago.
State Farm is showing no sign of turnaround when its advertisement is a clue. The ads with star athletes like the Kansas City Chiefs quarterback Patrick Mahomes continue to raise the company’s “surprisingly good prices”.
For years, Northbrook-based insurers like State Farm and Allstate, which sell most policies through thousands of agents across the country, have not been known for low prices. Rather, consumers receive help from a broker in the event of a problem and the promise of reliable claims settlement. Geico and Progressive, mostly selling direct to consumers over the internet or phone, have driven savings as their main marketing message.
If State Farm continues to keep rates below pre-pandemic levels, Geico and Progressive could be tested in ways they haven’t been in years. The highest inflation in decades has also made consumers more price sensitive.
“Basically, car insurance is a commodity product,” says Horn.
But State Farm cannot sustain underwriting losses over the long term, even with net worth of $ 126 billion at the end of 2020.
“State Farm is not immune to some of the industry trends,” says spokeswoman Harrier. “We continue to monitor our own trends to assess any adjustments that may be required.”