In recent years, U.S. insurers have been pressured by rising costs on auto policies as distracted drivers and repair costs soar. The nation’s largest property/casualty insurer, State Farm, reported that annual profit fell 94% on car insurance claims costs. To make matters worse, the underwriting loss from auto insurance widened to $7 billion from $4.4 billion.
Analysts say that State Farm’s auto insurance results should clear the path for the industry to raise auto insurance rates. While this might be viewed favorably by major auto insurers, it certainly may not bode well with the insured.
The theory behind the pricing increase is to eventually lead to better auto insurance underwriting margins. These have been negatively affected by increased claims cost inflation. A few companies that have started to increase auto premiums because of higher expenses include, Travelers, Allstate and Berkshire Hathaway’s, Geico.
But not all was bummer news for State Farm as other units did better than auto insurance. There was a $1.6 billion underwriting gain from the segment that includes residential coverage. Life insurance, the banking unit and a mutual fund operation were also profitable.
Surprisingly, or perhaps not, State Farm’s net worth climbed to $87.6 billion from $82.7 billion a year earlier. The boost includes a $4.2 billion increase in the property-casualty units’ stock portfolio. State Farm is among the largest holders in companies including IBM, Walt Disney, and Johnson & Johnson. Like most clever companies, they rely on their investments to help soften the blow on underwriting losses.
So, the next time you open your auto insurance bill, don’t be alarmed if you see a small rate hike in your premiums.