In the early stages of the pandemic last year as commuters stayed home, State Farm steeply cut car insurance rates in every state. More than a year later, the Bloomington-based giant has generated growth in many states like it hasn’t seen in years.
Consider New York and Michigan, the fourth- and fifth-largest states, respectively, for auto insurance sales. Together they account for 9% of total premiums. State Farm’s auto policies grew 9% in each of those states in the 15 months after the company filed for dramatic rate cuts, according to regulatory filings. The reduction in New York was 12.6% and in Michigan 11.6%.
In Texas, the second-largest U.S. auto insurance market, State Farm’s policies rose 4% in just seven months after slicing rates 12.4%.
Crain’s surveyed State Farm’s auto policies in 14 large states after its rate reductions. Overall, policies in those states grew 3%. In many cases, though, the interval between the reductions and the insurer’s most recent filing was less than a year. In six states where policy differences could be tracked over more than a year, aggregate growth exceeded 5%.
Those six states—Pennsylvania, New York, Michigan, Connecticut, South Carolina and Arizona—accounted for 18% of total U.S. auto premiums generated in 2020. Texas by itself made up another 9%.
The question now is whether State Farm will hold the line even as its main rivals—Allstate, Geico and Progressive—hike rates in response to rapidly rising inflationary pressures that have led to underwriting losses.
State Farm’s once-commanding market share in auto insurance has ebbed steadily over the last four years. What for more than a decade had been a reliable share of more than 18% of U.S. premiums dropped to 17% in 2018 and 16% in 2019, according to the National Association of Insurance Commissioners.
Market share always has been important to State Farm. Before the pandemic, Chevy Chase, Md.-based Geico was on track to overtake State Farm by as early as next year. (Geico’s 2020 market share was 13.6% while State Farm’s was 16.2%.) A State Farm spokeswoman in early 2020 said the company had “no intention of ceding our leadership position.”
COVID may well have given State Farm an opening to hold onto its crown—or at least delay the succession. As a mutual insurer, technically owned by its policyholders, State Farm doesn’t have to respond to shareholder pressures when markets churn 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.
“Regarding auto rates, our approach remains the same—to make incremental adjustments based on driving behaviors to ensure the rates we have in place reflect anticipated driving and claim volume, and to minimize the impact to customers as much as possible,” spokeswoman Angie Harrier says in an email. “We’re unable to speculate about future rate adjustments. Even with recent adjustments, State Farm auto rates remain below pre-COVID-19 levels, although miles driven and claim volume have increased.”
She says the company will have more to say in its annual report at the end of February.
While State Farm’s improved policy growth is likely cause for cheer in Bloomington, it still lags faster-growing Progressive, based in the Cleveland suburbs. As of Sept. 30, Progressive’s auto policies were 8% higher than at the same point in 2020, according to a Securities & Exchange Commission filing.
Geico, by contrast, has stalled. Parent Berkshire Hathaway reported growth of just 159,000 policies at Geico in the first three quarters of 2021, or about 1%. Allstate brand auto policies were roughly flat year over year.
Allstate is boosting rates by high-single-digit percentages in virtually every state, company executives told analysts last month. Progressive has a head start and raised rates by an average of 6% in 20 states during the third quarter, according to a Nov. 22 Goldman Sachs report.
If State Farm doesn’t follow suit, “That’s going to have negative implications for everybody else,” says Brett Horn, analyst at Morningstar in Chicago.
State Farm shows no signs of pivoting if its advertising is any indication. The ads, featuring star athletes like Kansas City Chiefs quarterback Patrick Mahomes, continue to pitch the company’s “surprisingly great rates.”
For years, insurers like State Farm and Northbrook-based Allstate, which sell most policies through thousands of agents around the country, haven’t been known for low rates. Rather, consumers get help from an agent when they have a problem and the promise of reliable claims service. Geico and Progressive, which sell in large part directly to consumers over the internet or phone, have pushed savings as their main marketing message.
If State Farm persists in keeping rates below pre-pandemic levels, Geico and Progressive could be tested in ways they haven’t been for years. The highest inflation in decades has consumers more price-sensitive as well.
“Fundamentally, auto insurance is a commodity product,” Horn says.
Yet State Farm can’t absorb underwriting losses in perpetuity, even with a net worth of $126 billion as of the end of 2020.
“State Farm isn’t immune to some of the industry trends,” spokeswoman Harrier says. “We continue to monitor our own trends to evaluate any adjustments that may be needed.”