Those evil auto insurance firms are at it again

State Farm Mutual Automobile Insurance Company, the largest insurer of autos in the nation, announced today it will pay $1.25 billion in dividends to its mutual auto insurance policyholders in 46 states, the District of Columbia and the Canadian province of New Brunswick.
The premium amount in New Brunswick will be equal to 25% of the policy holder’s prior term Semi-Annual Premium ($3.1 million in total). This is the highest payout rate of any province or state.

Now some will say that State Farm ‘overcharged NBers’ and they are reaping windfalls, etc.

But the bottom line is that State Farm has reduced its premiums and now it is giving more back because it earned more than it expected.

I think it is a good thing.

6 thoughts on “Those evil auto insurance firms are at it again

  1. I think you should read all that link. It’s basic math, let’s see, insurance increases by 50% in 2001 and has declined by 20% since. That’s still a hefty 30% increase.

    The company states that it made 8 BILLION more, and thats with somewhat lowered rates. They don’t state what payouts were, but as mentioned before, that $2500 limit on soft tissue injuries probably helped A LOT.

    So as a policy holder you get, they say, from $15 to $35 back. Let’s see, on average a person may pay $400 in semi annual premiums which means this is equal to, what, about 8%, if you’re lucky? That’s hardly something to get excited about. Notice also that its a one time thing, I think most people would prefer a decrease in their premiums.

    But that provides a benchmark. If it’s from 15-35 dollars, so that’s a median of 25. If they are paying out 3 million was it? That means that there is approximately 120,000 New Brunswickers who are with State Farm. So, on average, with an $800 a year premium, which is being pretty cheap actually, that’s $96,000,000 a year that leaves New Brunswick each year for this one company.

    100 million is nothing to sneeze at, and remember, that’s just one company, so lets say there are four times as many other companies, that’s almost HALF A BILLION dollars that leaves New Brunswick in ONE YEAR.

    Now, of course you have to figure in employment, and I don’t have those figures, but the difference between the jobs lost when switching to public insurance will be fairly minimal. So public insurance could well reinvest at least a quarter of a billion dollars A YEAR back into New Brunswick.

    That’s one quarter the price of a new nuclear plant in one year, that’s lots and lots and lots and lots of money to go toward economic development.

    A quarter of a billion is one sixth the amount the province gets in equalization. So if you want ‘self sufficiency’, forget all the other crap you’ve been hearing about, JUST DO THIS. How much do you want to bet it never gets mentioned in the ‘self sufficiency task force’?:)

  2. Don’t quit your day job. First, policy holders get 25% of the semi-annual premium back. So if the policy is $800/year, they get $100 back. To get $15 bucks back, their total annual policy amount would have to be only $120. Who wouldn’t want that rate? Second, you say $100 million leaves the province. That’s nuts. They payout millions in claims each year in the province and the brokers get another chunk of 5% or more. Lastly, I just read this morning that a big chunk of your auto insurance goes to the province of New Brunswick as a health levy and the Auditor General is recommending removing this charge altogether. So take out claims costs, brokers’ fees, administration charges, and the NB health levy and you get – I would imagine a reasonable rate of return on State Farm’s investment.

    Not all companies are evil, Anon. Some are but most are just trying to generate wealth and economic value for shareholders which increasingly are pension fund and mutual fund holders like you and me (check that I don’t have a pension….).

  3. Good points, I was looking at where it said the ‘average payout would be $35’ but as you note, New Brunswick is at the high end of that. The question is, if some states are only getting 2-3% why is NB getting 25%? However, please tone down the rhetoric, nobody is saying anybody is ‘evil’. However, some other stuff I came across:

    “State Farm Insurance announced today it is issuing refunds to approximately 3,800 automobile insurance policyholders in New Brunswick as a result of an error in the application of a New Business Discount that was introduced in 2000.” Question is, is that all of it?

    And this..

    Allegations by whistleblowers and plaintiffs lawyers that State Farm Fire & Casualty Co. used a “one-size-fits-all” engineering report to deny policyholders’ Katrina-related claims are stirring up Mississippi’s southern federal district.

    State and federal prosecutors and grand jurors are looking into allegations that insurance claims were denied on the basis of a biased engineering report. The allegations were brought to light by two claims adjusters who had worked for an Alabama risk management firm under contract with Bloomington, Ill.-based State Farm.

    Richard T. “Flip” Phillips of Smith, Phillips, Mitchell, Scott & Nowak of Batesville, Miss., an attorney representing Judy M. Guice in a mass tort on behalf of Mississippi homeowners who lost their homes, alleges that State Farm’s tactics reveal “a calculated strategy of wrongful claims denial.” Guice v. State Farm Fire & Casualty Co., No. 06-cv-1 (S.D. Miss.).

    “If they’re allowed to do this, the lesson the insurance industry will have learned is that in mass catastrophe situations, a calculated course of across-the-board, wrongful claims denial and trying one case at a time pays,” Phillips said.

  4. Then there is this:

    “A recent investigative report by CNN found that major car insurance companies, lead by State Farm and Allstate insurance, are increasingly fighting claims from those injured by their insured members.”

    As well as the fact they will no longer be operating in Mississippi, which saw lots of Katrina damage and many lawsuits.

    For insurance in general, we can look at Wawanesa, the largest auto insurer in NB. In the past 3 years they claim a before tax profit of $700 million, most of which they claim comes from New Brunswick.

    Something rarely mentioned is that other provinces have limits on insurance profits, whereas in New Brunswick they have limits, which are rarely followed, on premiums.

    So whether State Farm is just ‘gettting a reasonable return on investnment’ is an inference, not a conclusion. Until somebody points out EXACTLY what these costs are we simply don’t know. My point is simply that ANY money leaving the province is money that would be staying in the province under public insurance. We don’t know exactly what that is, but I highly doubt State Farm is returning 25% to New Brunswickers whereas the average is 10% simply because they happen to really like New Brunswick. Ontario is getting a much smaller amount and there has got to be ten times the number of customers there.

  5. After some more research, the health levy is approximately 27 million, which isn’t much. From what I’ve found the levy is paid by insurers, which means if its taken off then its doubtful that premiums will be lowered.

    In 2002 premiums came in at half a billion dollars for the province. Virtually EVERY insurer in those years was making massive profits. Yet those companies only added $700,000 to the government in property taxes.

    Out of that half a billion, ‘workers’ earn 10% off of premiums and thats how they are paid, which means for jobs $50, 000, 000 is staying in the province while $450 million is left.

    A CBC report claims that NB drivers are paying 205 million , so subtract the 76 million in health premiums, CIT and salaries and that still means at least 100 million.

    Add to that the much lower premiums that the committee was recommending and thats a pretty good boost for the province.

    Of course I understand the ‘message’ that it may send, however, Saskatchewan seems to be doing much better than NB, its doubtful that that alone will mean a huge dip in investment.

    So here’s the point I’m trying to make-there are at least two ways of getting ‘self sufficient’. A hundred million is a lot of money, maybe not the quarter billion mentioned, but still one tenth the amount of Lepreau in one year. That’s a big piece of cheese and would go a pretty long way. Also, keep in mind the savings in the courts. So nobody is talking about ‘good and evil’, just ‘value for money’.

  6. SOrry, should have read that over, thats supposed to be 205 million more paid in premiums than they got in claims.

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