State Farm on Pace to Lose Car-Insurance Crown to Geico

State Farm, for decades the top dog of U.S. auto insurance, is on track to lose that status within just a few years unless trends favoring online insurers abate.

Source: Crain's Chicago Business | Published on January 13, 2020

Rising auto insurance rates as car prices come down

After business losses following a series of uncharacteristically sharp rate hikes in 2016 and 2017, the 17 percent national market share the Bloomington-based giant held in 2018 was its lowest in more than 20 years. Nipping at its heels was Geico at 13.4 percent.

If the growth rates the two have averaged over the last five years persist, Chevy Chase, Md.-based Geico will overtake State Farm as the country's largest auto insurer around 2022.

Says a State Farm spokeswoman in a statement, "We remain focused on providing products and services to meet our customers' needs and have no intention of ceding our leadership position."

The market share numbers aren't available yet for 2019, but State Farm didn't appear to reverse its fortunes much last year, even though it reduced insurance rates in most states over the past 18 months to two years. Rate changes the company filed in several key states, including Texas, Michigan, Virginia and State Farm's home state of Illinois, showed its number of auto policies declining modestly from late 2017 or early 2018 until various periods during 2019.

For its part, State Farm says 2019 was a pretty good year, but it didn't provide numbers to back that up.

"Our most recent 2019 data shows growth in auto policies in a majority of states, including the states you've mentioned," spokeswoman Gina Morss-Fischer says. "It's common for auto market share to fluctuate, especially after instituting auto rate cuts, because market share is measured by premium. We're unable to share our growth plans, because the information is proprietary."

With a net worth of nearly $101 billion at the end of 2018, State Farm has the financial strength to cut prices more dramatically, which in the past has led directly to market share gains. Former CEO Edward Rust Jr. famously proclaimed in 1998 that "the big dog is off the porch" in instituting substantial rate reductions in big states following a period of sluggish growth. The move resulted in market share gains but also launched a price war that sapped profits throughout the industry.

Archrival Allstate at the time responded with rate-cutting of its own but then swore off ever doing that again when its core property-and-casualty business turned unprofitable. Since then, Northbrook-based Allstate has stayed true to that vow and—not coincidentally—has fallen from the second-largest auto insurer in the U.S. to the No. 4 player, trailing State Farm, Geico and Mayfield Village, Ohio-based Progressive.

Rust retired in 2015 after three decades as CEO. Company veteran Michael Tipsord succeeded him. The sharp rate hikes in response to dramatic underwriting losses that peaked in 2016 came under Tipsord's watch. He returned State Farm's insurance business to profitability but—like Allstate in previous years—at the cost of market share.


States in which State Farm lost lead market share since 2015 include Arizona, Maine and Virginia, according to data from the National Association of Insurance Commissioners. Geico supplanted State Farm in Arizona and Virginia, and Progressive did so in Maine. Perhaps more worrisome, State Farm as of 2018 was clinging to its top status in Texas, the second-largest market in the country. In three years, Geico went from a 10.1 percent share of Texas to 13.1 percent, growing premiums by 67 percent during that period. State Farm boosted premiums just 7 percent.

In its home state of Illinois, where State Farm is more dominant than any other state in the country, market share slipped in 2018 to 30.4 percent from 31.9 percent the year before, according to data from the Illinois Department of Insurance.

Tipsord also has been reducing State Farm's presence in Bloomington, where the insurer is by far the largest employer. Most striking perhaps is the decision to shift the company's crucial investment operations in 2020 to Dallas, where State Farm is growing. That will affect fewer than 100 employees, Morss-Fischer says, and some will be given the choice to remain in Bloomington.

Still, those are high-paying jobs, and investment performance is critical to State Farm's competitiveness. In the past, the company, which as a mutual insurer doesn't have to be accountable to investors, has been willing to sacrifice insurance profitability for the sake of price competitiveness so long as investment gains made it profitable overall.

Bloomington is gaining as well in State Farm's reorganization, with its marketing department being centralized in the home office, Morss-Fischer says. "We are seeing new jobs created in (Bloomington-Normal), and employees from places like Atlanta are relocating to central Illinois."

State Farm's struggle to grow auto policies no doubt is due in part to a more cost-conscious American consumer. Online insurers like Geico and Progressive have grown much more sophisticated in targeting consumer segments and enjoy a significant cost advantage over rivals like State Farm that sell through agents, says Paul Newsome, an analyst at Sandler O'Neill & Partners in Chicago.

"I think the business every year just has gotten more and more competitive," he says.

State Farm remains formidable, he says. "It's still a very viable distribution system, and there's a large segment of the population that wants an agent."

But that segment is aging, and younger consumers who've grown up with the internet often prefer to buy directly rather than through an agent. Unlike Allstate, which has tried hard to break through with online auto insurance offerings in addition to its bread-and-butter agent business, State Farm has stuck with its sales force.

Will Geico kick the big dog off the porch? This year may well be pivotal to that outcome.