State Farm’s may not be alone atop the super-competitive U.S. auto insurance business for much longer.
Geico will likely move into a virtual tie for the No. 1 market share position by the end of 2021, according to a new report from Fitch Ratings. State Farm has experienced “declining market share over the last five years,” Fitch wrote, while Geico and Progressive have made gains. That movement comes in a top-heavy business, where the Top 10 auto insurers control about 73% of the market.
“(Geico and Progressive) have been growing at a faster pace than State Farm for some time,” said Jim Auden, managing director for insurance at Fitch. “And if you just extrapolate those growth trends, we think Geico and State Farm will be pretty much neck and neck by the end of 2021.”
Bloomington-based State Farm held around 16.5% of auto market share in 2019, with Geico (Berkshire Hathaway) close behind at 14.1% and Progressive with 12.4%, according to Fitch. State Farm is expected to hold its "insurmountable" market-share lead in the homeowners insurance business, Fitch said.
"We remain focused on providing the best products and services to meet our customers’ needs and have no intention of ceding our leadership position," a State Farm spokesperson said Monday. "It’s common for auto market share to fluctuate, especially after instituting auto rate cuts since market share is measured by premium.
"As part of our customer commitment, during the recent pandemic we continue to provide value to our customers in the form of a premium credit and auto rate cut totaling nearly $4.2 billion nationally for 44 million State Farm auto policyholders," she said.
In the short-term, the bigger story in insurance is disruption caused by the coronavirus.
On the auto side, customers are driving—and crashing—less. State Farm reported an average daily claim volume between 26% and 56% lower than usual between March 29 and May 2, according to analysis by S&P Global Market Intelligence. In short, the pandemic has reduced near-term claims frequency and boosted near-term profits.
In turn, auto insurers, including State Farm, have announced premium returns or rate reductions totaling over $11 billion so far. But “These efforts still likely are outpaced by a near-term reduction in loss costs that will lead to strong personal auto profits in 2020,” according to Fitch’s report, dated July 16.
So does that mean auto insurers have saved more than they’ve given back?
“Right now, they’re still catching up on that,” Auden said. “The folks who price insurance, they’re looking to see what’s an aberration, and what’s a shift in trend. So that’ll take time to see. I think we’ll see more premium reductions in the near-term, moving forward. The question is, when do we get back to more normal driving experience and the inevitable more normal claims frequency?”
There are other challenges too. This short-term success “may lead to longer term profit challenges when vehicle usage and claims activity returns to a more normal course,” Fitch writes. “Loss severity moves perennially upwards for auto insurance. Garnering rate increase approvals from regulators in response to future loss cost changes may prove more difficult going forward.”
Also, there’s anecdotal evidence that the pandemic is increasing crash severity.
“With roads emptier, folks are driving a bit faster when they get into an accident. So that’s kind of a counterforce,” Auden said.
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