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Just had some major water damage in one of my homes. State farm stepped up, cut the check, no issues, no nickel pinching. Customer for life. Don't care if other companies charge a few shekels less.
Have heard good things about Cincinnati insurance as well lately...
I have home/auto/umbrella through State Farm. I've had a couple major (~$100,000) home claims and a few minor claims over the years. Perhaps it is my local people, but I would say they have done more than right by me. No jumps in rates due to claims, either. Not interested in pursuing lower cost.
From a Reuters article today on Berkshire Hathaway ( BRK/A )
"GEICO UNDERWRITING PROFIT TRIPLES Quarterly insurance profit rose 54% to $5.58 billion, benefiting from more investment income and Geico's ability to charge higher premiums even as drivers submitted fewer claims."
Anyone care to bet that they are not the only insurance company doing the same?
Do you guys remember Todd Combs? He is the CEO of Geico. He was originally hired by Buffett in 2010 to manage some of BRK portfolio investments, with the thought that he would take over BRK investments when Buffett retires. It turned out Todd had worked during his younger years at Progressive and some other insurance company as an analyst and had good knowledge of GEICO's line of business. So, Buffett made him CEO of Geico in 2020 to make Geico more efficient. I guess he is doing his job! It is interesting how Buffett seems to have a knack to identify human talent just as he is good at spotting good companies.
It will be interesting to see how Geico investment portfolio has done since Todd took over.
Investors expect their companies to increase profits every quarter; customers expect them to continually lose money. Neither expectation is realistic.
Zooming out only slightly:
A 2023 pretax underwriting profit of $3.6 billion, reversing a $1.9 billion underwriting loss reported for 2022 at Berkshire’s personal auto insurance operation, GEICO,
Geico's ability to charge higher premiums even as drivers submitted fewer claims. Insurers play the long game. If they knew in advance each year how much they would have to pay out, they would set premiums precisely and never have a losing year. But see below (my final few paragraphs quoting NYT).
Like the rest of the auto-insurance industry, Geico was hit by sharply higher claims costs in 2022. It responded by raising premiums, which were up an average of 17% per policy in 2023. That increase, plus sharp cuts in expenses, including for advertising, helped restore profitability in 2023.
make Geico more efficient. That's one way of putting it. Another would be: make Geico less inefficient. Again from that Barron's article:
The head of Berkshire’s insurance business, Ajit Jain, acknowledged the challenges at the conglomerate’s annual meeting last May [2023], saying “Geico’s technology needs a lot more work than I thought it did.” He noted that Geico had “more than 600 legacy systems that don’t really talk to each other.” Geico, he added, is trying to compress that to no more than 15 or 16 systems.
The underinvestment in technology that led to that tangle looks like an unusual unforced error by Buffett. He didn’t immediately respond to a request for comment. Geico declined to comment.
In the recent 2024 annual meeting (short video clip below), Jain acknowledged that Geico is still playing catchup. Let's hope it continues to improve and that Salim Ramji over at Vanguard can take away some lessons from this. And speaking of Vanguard, Buffett also mentioned Geico's low cost advantage that "masked" Geico's inefficiencies.
As to why the whole industry is raising rates quickly and why there are these wild swings in profits (losses), the NYTimes recently wrote in Why Is Car Insurance So Expensive?:
A key reason car insurance costs are rising so fast right now has to do with how the industry is regulated. ...
If insurers are deemed to profit too heavily, regulators can make them return money to customers. ... At the height of pandemic lockdowns in 2020, when many cars sat idle, insurers returned almost $13 billion to customers through dividends, refund checks and premium reductions for policy renewals ...
When the pandemic shut down most economic activity, it messed up insurers’ ability to use the past to predict the future. ...
[I]n the second half of 2021 ... The prices of cars and parts were jumping and drivers were back on the roads and crashing left and right after a hiatus behind the wheel. "You went from this period of incredible profitability to incredible losses in the blink of an eye," ... “Everyone was together in significantly pushing for rate increases.” ...
[California's insurance] regulator did not start approving insurers’ requests to raise rates until near the end of 2022. The backlog grew so large that the average wait time for approvals was longer — by several months — than the six-month policies that insurers wanted to sell.
[Calif. was slowest but other states also very slow]
In 2021, insurers’ personal auto businesses started recording losses. [2021: $4B, 2022: $33B, 2023: $17B] ... many companies still need to raise prices to make up for those bad years.
I]n the second half of 2021 ... The prices of cars and parts were jumping and drivers were back on the roads and crashing left and right after a hiatus behind the wheel. "You went from this period of incredible profitability to incredible losses in the blink of an eye," ... “Everyone was together in significantly pushing for rate increases.” ...
The point that drivers went from little driving to a lot of it (while out of practice) is pertinent here. But it may not comprehend the real elephant in the room.
It is increasingly dangerous out there. I feel some are taking out their societal / political rage by more aggressive driving. And the move by many to owning “living rooms on wheels” (a reference to one of David’s recent commentaries) aggravates the problem by obscuring the line of sight for smaller vehicles mixed in amongst these behemoths and increasing the cost of repairs after collisions as well as the potential for personal injury.
Paradoxically - ISTM the fact newer cars have anti-collision technology built-in is encouraging many drivers to pull into heavy traffic without much concern for others. Are you being tail-gated? Many new cars have radar enabled ability to stay a set distance behind the car in front of you when in cruise mode. The driver sets the distance (ie from 50’ to 200’). ISTM many select the shortest available option. For what good purpose I ask?
I could ramble on. Some of this falls back on lax or underfunded enforcement. Some relates to overcrowded insufficient infrastructure in need of update. Perhaps the courts are too lax as well?
@Hank. You nailed it…great post. Defensive driving and excellent safety tech can only do so much in today’s road conditions. We often drive from Sacramento to the Bay Area and never see anyone getting a ticket. We see lots of less than legal driving.
Comments
Have heard good things about Cincinnati insurance as well lately...
Thanks for sharing your State Farm experiences!
"GEICO UNDERWRITING PROFIT TRIPLES
Quarterly insurance profit rose 54% to $5.58 billion, benefiting from more investment income and Geico's ability to charge higher premiums even as drivers submitted fewer claims."
Anyone care to bet that they are not the only insurance company doing the same?
It will be interesting to see how Geico investment portfolio has done since Todd took over.
Zooming out only slightly: https://www.carriermanagement.com/news/2024/02/25/259036.htm
You can find us the figures for 2021 and 2020.
Geico's ability to charge higher premiums even as drivers submitted fewer claims.
Insurers play the long game. If they knew in advance each year how much they would have to pay out, they would set premiums precisely and never have a losing year. But see below (my final few paragraphs quoting NYT). https://www.barrons.com/articles/berkshire-hathaway-geico-progressive-stocks-c03bcdf4
make Geico more efficient.
That's one way of putting it. Another would be: make Geico less inefficient. Again from that Barron's article: In the recent 2024 annual meeting (short video clip below), Jain acknowledged that Geico is still playing catchup. Let's hope it continues to improve and that Salim Ramji over at Vanguard can take away some lessons from this. And speaking of Vanguard, Buffett also mentioned Geico's low cost advantage that "masked" Geico's inefficiencies.
As to why the whole industry is raising rates quickly and why there are these wild swings in profits (losses), the NYTimes recently wrote in Why Is Car Insurance So Expensive?:
The point that drivers went from little driving to a lot of it (while out of practice) is pertinent here. But it may not comprehend the real elephant in the room.
It is increasingly dangerous out there. I feel some are taking out their societal / political rage by more aggressive driving. And the move by many to owning “living rooms on wheels” (a reference to one of David’s recent commentaries) aggravates the problem by obscuring the line of sight for smaller vehicles mixed in amongst these behemoths and increasing the cost of repairs after collisions as well as the potential for personal injury.
Paradoxically - ISTM the fact newer cars have anti-collision technology built-in is encouraging many drivers to pull into heavy traffic without much concern for others. Are you being tail-gated? Many new cars have radar enabled ability to stay a set distance behind the car in front of you when in cruise mode. The driver sets the distance (ie from 50’ to 200’). ISTM many select the shortest available option. For what good purpose I ask?
I could ramble on. Some of this falls back on lax or underfunded enforcement. Some relates to overcrowded insufficient infrastructure in need of update. Perhaps the courts are too lax as well?