State Farm takes huge hit on auto insurance
Wednesday, Mar 1, 2017 - Posted by Rich Miller
* Whenever a major Illinois-based corporation feels serious pain, I always wonder if they’ll start demanding something from the state. I have no idea what State Farm will do and I’m not suggesting that something will actually happen, but it’s worth keeping an eye on because rumors have swirled for quite a long time that they’ve been looking to get outta here…
State Farm Insurance lost more money insuring cars last year than it ever has in its 95-year history.
The Bloomington-based giant, by far the largest U.S. auto insurer, incurred $35.8 billion in claims and loss adjustment expenses. When combined with the costs of running its auto insurance business, State Farm lost $7 billion for the year in that segment.
That was 63 percent higher than its $4.4 billion auto underwriting loss in 2015.
State Farm’s staggering auto insurance loss is the most visible sign yet of how distracted driving and rising repair and medical costs are hammering car insurers. Many are hiking rates at levels not seen in years to try to keep pace with the claims payouts.
Overall, the company reported a profit of $400 million, down from $6.2 billion in 2015.
Whew.
- Thoughts Matter - Wednesday, Mar 1, 17 @ 10:18 am:
We need to see a state by state policy premium vs claims cost comparison. We don’t know what their Illinois costs look like.
- Mahna Anon - Wednesday, Mar 1, 17 @ 10:22 am:
Wow, I never would have known it.
- The Dude Abides - Wednesday, Mar 1, 17 @ 10:29 am:
Wow, given the premiums companies charge for auto insurance you’d think it would be profitable for everyone.
The problem with distracted driving is real. I can’t take a 10 minute drive here in Springfield without seeing someone looking down playing with their phone while driving. The hands free only devices law is not being enforced.
- Rich Miller - Wednesday, Mar 1, 17 @ 10:34 am:
===The hands free only devices law is not being enforced===
I imagine a lot of folks look around for the police before checking their phones (not like I would ever do such a thing, of course). If the cops don’t see it, they can’t enforce it.
- AlfondoGonz - Wednesday, Mar 1, 17 @ 10:36 am:
A few years ago, I worked for Enterprise Rent-A-Car. There was a huge hail storm in the Chicagoland Area, and a ton of State Farm insureds came in for rentals, covered by State Farm, while their personal cars were getting repairs. Some of these rental contracts lasted for weeks. State Farm, after already agreeing to cover the cost of the rental, decided after about 3 weeks that the hail storm was “an act of God” and refused to pay their insureds bills, many of which were hundreds of dollars. Of course, they didn’t tell their insureds that; they simply removed themselves from the rental contract and left us to look like we screwed over our customers.
I don’t have a high opinion of State Farm.
- Shemp - Wednesday, Mar 1, 17 @ 10:43 am:
Wow, if those numbers are accurate, that’s a staggering shift.
- Springfield Since '77 - Wednesday, Mar 1, 17 @ 10:53 am:
Much of the “income” from insurance companies (health, auto, home, etc.) come in the form of investment income. Usually short term fixed income (boringly safe) instruments… Gotta love this zero interest environment, just like our the guys managing our retirement funds.
- Bloom Normalite - Wednesday, Mar 1, 17 @ 11:02 am:
The insurance biz is volatile year to year. Auto losses for State Farm were driven by several large events, hail in Texas and the South, and California wildfires. The company reports five events last year that were in the top 25 for cost in company history. It’s not just hurricanes folks. In spite of that, they had net income…small though it was. They also increased net worth by $4.9 Billion to $87.6 Billion even in this down year for operating results. Bottom line…it was a flat year, not a disaster. Not time to push the panic button.
- Matt Belcher - Wednesday, Mar 1, 17 @ 11:05 am:
When big insurance company profits are down there is only one answer:
We need to reduce the reimbursement rates to the families of injured cars and their repairmen.
If we don’t act expeditiously implement a new model all the job creators will pick up an move to Indiana and Kentucky.
- Bloom Normalite - Wednesday, Mar 1, 17 @ 11:09 am:
The one year swing in net income is also a little misleading. In 2015, State Farm had $3 Billion in capital gains from two mergers of companies in which they held financial stakes. That’s a $3B one off, not likely to be repeated often.
- DuPage - Wednesday, Mar 1, 17 @ 11:10 am:
Insurance companies always can play around with numbers. Allstate made money on their auto insurance and State Farm lost 7 billion? Sounds like creative bookkeeping. Since drivers are REQUIRED by the state to buy auto insurance, the state should require them to open their books.
- CapnCrunch - Wednesday, Mar 1, 17 @ 11:12 am:
“….distracted driving and rising repair……”
Replacing a bumper today frequently includes repairing a radar transceiver.
- Bloom Normalite - Wednesday, Mar 1, 17 @ 11:15 am:
Regarding rumors of headquarters departure from Illinois…State Farm owns all its land in Bloomington-Normal. It is leasing in the other states it has chosen for its new hubs. The new CEO is Illinois born and raised and has articulated a commitment to the state and community. After he has his run (and he’s only a year in), it’s more of an open question as other top tier execs have fewer local ties. But, there are still those buildings there that would be difficult to sell for any meaningful price. Never say never, but the rumors don’t have a lot of weight right now.
- Anonymous - Wednesday, Mar 1, 17 @ 11:35 am:
This is just a feint in the war against auto body repair shops and towing companies in the state. They are preparing to introduce legislation that will allow them to reduce costs in these two segments. As it stands now, it is hardly worth repairing their insured vehicles, but since they are so big, one must try to work with them.
- JS Mill - Wednesday, Mar 1, 17 @ 11:45 am:
Their loses have little to do with being headquartered in Illinois, but would have a big affect if they left. That said, they have no intention of leaving Illinois, or even reducing their Illinois footprint.
- 4 percent - Wednesday, Mar 1, 17 @ 12:02 pm:
@Matt Belcher….
Given that your concern is all about the injured workers, I’d propose lowing your mandated contingency fee from 20 percent to 15 percent so that the injured workers actually get to keep 85 percent of their awards. Sound good to you?
- lake county democrat - Wednesday, Mar 1, 17 @ 12:05 pm:
Hands-free is a myth - the problem is the extra distraction the conversation (voice or text) is compared to traditional in-car things like a radio (you can turn off/tune out a radio at will when conditions demand it).
- Matt Belcher - Wednesday, Mar 1, 17 @ 12:25 pm:
==Given that your concern is all about the injured workers, I’d propose lowing your mandated contingency fee from 20 percent to 15 percent…. ==
Hey now, most big business-types are not such explicit fans of government-imposed price controls.
Regardless, with respect, your facts are a tad alternative.
The state sets a ‘maximum fee’ not ‘mandated’ fee. That is a distinction with a difference.
The state-printed retainer agreement has a big blank space that allows the parties to negotiate the percent of the fee according to free market principles. (Like all red-blooded ‘Muricans.)
However, you are correct, the state does impose an arbitrary maximum attorney fee much to the chagrin of the free market, CATO-types.
May I add that the attorneys fees of the insurance company lawyers are NOT capped. Coincidence?
- Ron Burgundy - Wednesday, Mar 1, 17 @ 12:26 pm:
After last night’s tornadoes and hail all over, they are about to get a whole lot of new claims.
- Ghost - Wednesday, Mar 1, 17 @ 12:30 pm:
what makes the State Farm scenerio more complicated is the fire division (homeowners/buisness) has had huge losses and relied on the auto side to help carry it; BUT state farm makes most of its money off its in esemts and banking, not its actual insurance buisness. Some of those losses are just bookeeping, not sctual dollars lost. but its still not good
- Anon - Wednesday, Mar 1, 17 @ 12:31 pm:
So distracted driving is causing more accidents? Maybe State Farm should include a clause in their contracts invalidating coverage if the insured is texting, playing or talking on the cellphone at the time of the accident.
- A Jack - Wednesday, Mar 1, 17 @ 12:34 pm:
They just sent me a save money by switching mailer, but the amount they quoted was quite a bit higher than what I pay and it didn’t look like full coverage.
So maybe they need to review their rate structure for low risk drivers?
- A Jack - Wednesday, Mar 1, 17 @ 12:39 pm:
And my insurance company just lowered my rate. My insurance went down about 15 cents a month which isn’t much, but it didn’t go up.
- Stoney - Wednesday, Mar 1, 17 @ 1:09 pm:
Start treating distracted driving accidents like a DUI. License suspension for a year and $1000 fine.
- B-Team - Wednesday, Mar 1, 17 @ 1:32 pm:
While distracted driving, rising repair and medical costs have impact, there are other factors at play. Technology, like sensors, contribute to safer smarter vehicles - which eventually drives down premium. Autonomous vehicles are also a huge threat and have the potential to disrupt the entire industry. Bottom line, if State Farm isn’t positioned to pivot quickly to new products, they will be Blockbuster of the auto insurance industry.
- Name Withheld - Wednesday, Mar 1, 17 @ 2:27 pm:
They could also have lower profits because people switched away from them. We saved about $100 a month on our home/auto by switching to a different insurer from State Farm. Anecdotally, my sister (who admittedly is an outlier because she has 4 kids, 3 of whom are drivers along with her and her husband) saved $4,000 annually on home/auto when she switched.
- Arthur Andersen - Wednesday, Mar 1, 17 @ 3:06 pm:
Insurance isn’t the next “crisis.” It’s subprime auto lending. When you see those 100% approval ads, they’re doing it. People with 500-600 credit scores may be less inclined to keep the payments up at 20% on a used Dodge or just hand back the keys.
Like everything else right before it blows up, these loans are being securitized by the big boys.
As far State Farm, spending money to move HQ after a loss like that is terrible PR.