State Farm Lost $7 Billion on Auto in 2016

By | March 1, 2017

  • March 1, 2017 at 2:28 pm
    Kirk says:
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    yeah.

    • March 1, 2017 at 2:36 pm
      Agent says:
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      Allstate and GEICO reported bad results as well. Can a rate increase be far behind?

      • March 1, 2017 at 10:20 pm
        okt0ber says:
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        Allstate still made a profit, though. Geico lost a very small amount of money and still manages to be more competitive than State Farm. So, what’s happening at State Farm? Adverse selection?

        • March 2, 2017 at 12:05 pm
          Actuary says:
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          That’s right.

          State Farm’s automobile policies have fairly simple rate structures. Their competitors include more rate factors in the premium calculation, so they can offer lower rates to preferred risks. When it loses its preferred risks to competitors, State Farm’s overall risk pool gets worse.

          State Farm needs to get with the times. There are insurance companies with only $200 million of earned premium that have more sophisticated pricing than State Farm. Hire some actuaries and buy some computers.

          • March 3, 2018 at 1:55 pm
            Onceanagt. says:
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            Problem is SF underwrites by computer. Old computers. Actuaries are their last resort.
            It is time for –Last Resort.

    • May 5, 2017 at 1:58 pm
      Mae Wilson says:
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      You may be out of a job just over broke. Now is the time to come and join me and my company.

  • March 1, 2017 at 4:55 pm
    Rosenblatt says:
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    $38.8B in earned premium
    -$35.8B for claims & loss adjustment expenses
    ~~~~~~~~~
    $3.0B net gain

    Yet the article states there is a $7.0B UW loss for their auto line. Did they lose $10B in investments?

    • March 1, 2017 at 5:13 pm
      A says:
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      Loss Adjustment Expenses don’t include Acquisition and General Expenses – which must have been $10B

      UW Income = EP – Loss – LAE – Expenses = 38.8 – 35.8 – 10 = -7

    • March 1, 2017 at 10:22 pm
      okt0ber says:
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      The claims and loss adjustment expenses does not include any business operations expense – agent commissions (10%-15%) or general operations expense. Just the agent commission alone wipe out the “net gain” in your post alone without accounting for any other business expenses.

      • March 2, 2017 at 10:28 am
        Bill says:
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        Commissions are 10% for the older agents, and can be as low as 8% for the new agents on the new contract.

    • March 2, 2017 at 8:39 am
      Rosenblatt says:
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      Thanks for the explanation guys and/or girls. I definitely didn’t consider Acquisitions, General & Business Op’s Expenses or commissions. Appreciate the helpful responses!

      • March 4, 2017 at 11:08 am
        UboreMe says:
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        Are you questioning genders??!

  • March 1, 2017 at 5:57 pm
    SacFlood says:
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    Well, they need to stop insuring all of those NBA players, especially the L.A. Clippers – talk about losses…. :-)!

  • March 1, 2017 at 7:52 pm
    Einstein says:
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    And thus the pressure on SF agents to produce Life & Health and Bank products instead of auto will only intensify.

    • March 1, 2017 at 10:24 pm
      okt0ber says:
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      It’s already gotten intense in Texas. State Farm has some of the highest rates in the state, yet we’re seeing SF agents quote homes at a 5% deductible to make them look competitive. Have fun when it comes to claim time!

    • March 2, 2017 at 10:30 am
      Bill says:
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      If you go back and look at their earnings, they rarely make much in P&C. They make money on life insurance and (now) banking products. Most of their earnings come from investment gains on their sizable investment portfolio.

  • March 2, 2017 at 9:12 am
    mkltmsck says:
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    I’d be curious to know the split between commercial auto vs. personal auto for the auto losses. The article doesn’t address that.

    • March 2, 2017 at 12:20 pm
      dot hemath says:
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      Less than 2% commercial

      • March 4, 2017 at 10:09 pm
        okt0ber says:
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        Maybe 2% commercial auto policy form, but I see them with commercial auto risks written on a personal policy form all the time, especially sole prop contractors, which has become a horrible risk. There’s no easy way to account for that.

    • March 6, 2017 at 11:42 am
      Agent says:
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      State Farm is not known for Commercial Auto. I have seen them write Auto on a Personal Form when it should be on Commercial when the use was clearly a business. Those guys really don’t know what they are doing on Commercial.

  • March 2, 2017 at 10:13 am
    Beau Hartwick says:
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    Hmm. Big boy State Farm needs to invest more in SEO.
    From a search engine perspective the other companies are smashing SF.
    I own a SEO company and my client, a small insurance company located in Jupiter FL, actually gets more attention than SF for specific, high search keywords.
    Food for thought.

    • March 4, 2017 at 10:10 pm
      okt0ber says:
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      I don’t really think they’re all that concerned. They’re the biggest insurer in the country for personal lines.

    • March 6, 2017 at 12:58 pm
      Nancy Germond says:
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      I’m available for writing web content! ;)

  • March 2, 2017 at 12:18 pm
    Boonedoggle says:
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    State Farm has typically had an acceptable operating ratio on their auto book of business. After decades of successful leadership, they change their CEO and their profit model tanks.
    Any correlation here?

    • March 3, 2017 at 12:44 pm
      CL PM says:
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      With a company the size of SF, it will take more than a year for a leader to have impact on the results, either positive or negative. The 2016 results are a function of pricing decisions made in 2015, 2014, 2013 and even further back. So, I don’t think there is correlation to the new CEO. Yet.

  • March 2, 2017 at 1:12 pm
    Observor says:
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    There is an inverse relationship between gas prices trends and private passenger auto loss cost trends. People driving more creates more exposures on the road which is accounted for a little bit in the rate structure. However, the more crowded roads are not included in the rate structure.

    • March 6, 2017 at 11:44 am
      Agent says:
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      Maybe they are writing too many cell addicts who text while driving.

  • March 2, 2017 at 5:42 pm
    lonestar says:
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    someone mentioned GEICO. You cannot compare with the Lizard company since they are not priced to make money. Warren Buffet plays the float on the premium. So unlike every other insurer out there, GEICO is not priced to be profitable.

    • March 3, 2017 at 12:46 pm
      CL PM says:
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      GEICO may not price to as low a combined ratio as someone like Progressive, but I am sure they price to at least a combined of 95. They definitely do not want an underwriting loss.

      • March 4, 2017 at 9:19 am
        lonestar says:
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        If you read the latest statement from Warren Buffett, he talks about how the entire auto market is losing money, yet he says now is the time not to knee-jerk and raise rates to become profitable, yet he says now is the time to write new customers because everyone is shopping. Also, if you follow AM Best, they have stated over and over through the years, since Geico is such a small piece of Berkshire Hathaway, and is buried so far within, there is not way to really know what their true numbers are, yet many in the industry say they are not worried about profit, just about the float to use the premium money to invest in other things. GEICO spends 6$ of every $100 in premium on ad spend, and this does not include stadium sponsorships, etc. They are also hiring many local agents to put in place locally. Also hiring many new employees. So their overhead is increasing too. I am not saying they throw caution to the wind as far as watching the profit, I am saying folks that are way smarter than you and I are saying they do not care as much about making an underwriting profit year to year, and can do this because they do not have stockholders watching a GEICO stock, unlike Travelers and some other companies that will raise rates when they have too.

        • March 4, 2017 at 10:39 pm
          okt0ber says:
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          Geico is owned by a public company, if they start losing money the shareholders will absolutely have something to say about that.

    • March 31, 2017 at 8:35 pm
      Retired Agent says:
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      Mr. Buffet does NOT like an underwriting loss. I applaud him for thinking that insurance should make an underwriting profit. All of us that own Berkshire Hathaway appreciate his steady hand on the wheel

      • May 8, 2017 at 9:46 am
        Good work says:
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        thank you for using your post as a covert way to inform us that you are retired and own stock. Congratulations.

  • March 3, 2017 at 3:36 pm
    rocket88 says:
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    I’d like to see their book of underinsured/uninsured losses compared to their straight BI/PD/Med liability losses.

  • March 4, 2017 at 7:48 pm
    Observor says:
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    The target combined ratio for all of Mr. Buffet’s companies is 96%. However, he does not believe in the quick over reaction to success and failure as many public companies. He takes a long term view realizing the cycles.

    One thing about his companies is the efficiency in comparison to many competitors. The new hiring spree includes fast growing companies such as Berkshire Hathaway Homestate Companies where the combined ratio is very low and growth still continuing.

  • March 6, 2017 at 1:26 pm
    Jestr says:
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    I’m not buying it! Over $7 BILLION??? Come on folks they would be in bankruptcy or seriously retracting their market status. Something’s not adding up here with LAE and all the other factors being mentioned.

    • March 7, 2017 at 1:27 pm
      Milner says:
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      That’s just the underwriting loss. They made up most (but not all) of this loss with investment income but that doesn’t make an exciting headline.

  • March 10, 2017 at 3:15 pm
    Eddie Hall says:
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    In Georgia SF threw underwriting out the window a few years ago and I knew it was just a matter to time before it caught up with them. If a house had a roof that was 19 years old and all other companies declined the coverage insured’s could go to SF and get coverage. None of our companies will write the minimum auto liability of 25/50/25 so we place these insureds with non standard companies. SF has gobbled up most of the 25/50 policies for $240 per six months. You can’t issue a policy with minimum limits and break even most less make a profit. The local SF agents are some of the most unethical I have seen in my 44 years in insurance. Years ago the SF agent was well respected in the community and always wrote at least 100/300 limits. Today the agents will fight you over a minimum liability policy. I’ve had many insureds carrying 50/100 or 100/300 that went to SF and they quoted 25/50. They will also compare our annual policies to their 6 months policy. I don’t feel any sympathy for the good neighbor.

    • March 14, 2017 at 2:19 am
      George Lee says:
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      Sour grapes.

    • March 14, 2017 at 3:39 pm
      Agent says:
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      Perhaps they are getting business by people calling up at 3:00 AM for a quote. I see advertising that they are financing Autos. Wonder what the interest rate is and do they offer 0 down and 72 months to pay as long as they write the insurance. No mention of GAP insurance in the ad.

  • March 29, 2017 at 6:39 pm
    jay says:
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    Not appointing agents fast enough and being all over the insurance spectrum is going to be their demise. They need to go back to basics and concentrate on p&c.

  • June 29, 2018 at 4:35 pm
    william Rowland says:
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    the way they treat their custermers it is know wonder tay are not broke.



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