The Top Ten Private Passenger Auto Insurance Companies

The Top Ten Private Passenger Auto Insurance Companies

This article will try to enumerate the top ten private passenger auto insurance companies using a statistical analysis. I will explain my methodology along with my findings. I readily admit this is a highly debatable topic.

I think Travelers’ is the best private passenger auto insurance company. They’re the largest company in my agency. We have about 4,000 policies placed with them. I also have my personal auto policy placed with them, which is one criterion for picking the best. My high regard for Travelers’ reflects my experience over twenty years of working with them to solve insurance problems for customers. Our agency has steadily grown with them, an indication of consistent company positive behavior, that is not common in our industry.

The economist Adam Smith would argue that the insurance company that writes the most premium is the best company. He believed in the invisible hand that guided a group of people to make the proper economic decisions when their actions were viewed as a whole. I believe that the amount of the company’s written premium has much more to do with the aggressiveness of their ad campaigns than actual company value. Allstate and State Farm rose to their size through advertising. Progressive, GEICO, and Esurance are trying to do the same.

My selection process was:

1.)   I considered only the top 25 insurance private passenger auto insurance companies in the U.S. based on Direct Written Premium in 2013.

2.)   I arranged that list in order of their direct incurred loss ratio, including loss adjustment expense for the five years from 2009 through 2014.

That’s it — a very simple procedure. As you will see my personal choice as best company doesn’t even make the top ten. There’s so much more that goes into being the best company than loss ratio, but very little that you can quantify.

So why use this method?

I checked a lot of other “best companies” list and found that they’re based on customer surveys. When I see online opinions I wonder how many have been written by company employees. I believe my approach to be at least as valid.

My father taught me to view every economic decision from how it impacted me, not by how much money the other person will make. Based on that principle my list solely measures which companies pay out in claims the biggest percentage of what is paid into them. Simply put, they’re the companies who are sending back the most money to their customers.

Some in our industry would argue that the best company is the company with the best “combined ratio”, which is reached by adding the loss ratio to the expense ratio. It is a contrived figure, in that you’re adding apples to oranges. The loss ratio is a percentage of earned premium, while the expense ratio is a percentage of written premium. The insurance industry uses “statutory” accounting, which is much different than GAAP accounting, a method used by practically all others.

I also feel compelled to mention that the insurance industry is notorious for “creative” accounting. I know several big investors who will not invest in insurance companies because the numbers are so “squishy”.

I believe my selection method has some validity. After you peel back all the veneer, an insurance company is merely a financial mechanism to pool your money with other similar people’s money. The purpose is to smooth the results of unfortunate occurrences. Simply put, you give them your money to hold should you need it (and maybe someone’s, or a lot of other someones’, money) to cover your loss(es). What better way to assess the companies’ value than to see how much money they return over a five-year period?

Actuaries will cringe and suggest that if a company is paying out too high a percentage in loss dollars, they might not be financially sound, which erodes their purpose in providing financial security.

I was able to find no correlation between claims-paying ability (as judged by A. M. Best Company) and percentage paid out for losses, so I’ll stick with my methodology.

The top ten private passenger auto insurance companies in order by 2013 total direct written premium and their 2013 market share.

1.) State Farm                                             18.0

2.) Berkshire Hathaway (GEICO)              10.3

3.) Allstate                                                   10.0

4.) Progressive                                           8.5

5.) Farmers                                                 5.5

6.) USAA                                                      5.1

7.) Liberty Mutual (Safeco)                       5.0

8.) Nationwide (Allied/Harleysville)        4.0

9.) American Family                                   1.9

10.) Travelers’                                            1.9

As you can see, these ten companies write over 70% of the private passenger auto placed in the United States.

Now let’s look at the calculated list of the top ten with their percentage paid out in losses. I include the 2014 financial rating published by Best’s. The letter rating indicates their opinion of the insurer’s ability to meet its contract obligations (A++ is the best, F or S would be the worst).

1.) Auto Club Group                                   95.1                          A-

2.) Auto-Owners                                         81.0                          A++

3.) State Farm Mutual                                71.1                          A++

4.) USAA                                                      71.1                          A++

5.) National General                                   70.7                          A-

6.) Hanover                                                 69.1                          A

7.) Berkshire Hathaway (GEICO)              67.7                          A++

8.) AMICA                                                    66.7                          A++

9.) MAPFRE                                                 65.3                          A

10.) Nationwide (Allied/Harleysville)      65.1                          A+

I can guarantee that there’s not one insurance executive currently bragging to his board about how big their company’s loss ratio has grown. Each and every company on the above list would gladly trade for the 60.3 loss ratio posted by Travelers’ during that five-year period. However, insurance companies need to be realistic in that their customers want a large percentage of their money returned to the “pool members” in the way of loss payment.

I was the chief executive for a small political subdivision insurance company for thirty months in the mid-1980’s I gave over one hundred presentations to groups of insureds and prospective insureds. Each time I spoke, I dreaded the thought of them asking me how many pennies on the dollar we expected to return to the users in the way of claims payment and loss expense. Even though it was a start up I managed to have a 26% expense ratio, which was much better than the industry’s at that time. I knew the average person would not appreciate a system in which it cost twenty-six cents on the dollar to “hold money”.

In my opinion, some insurance companies have become less accountable stewards over the last few years, with a huge amount of money spent by many on advertising.

The purpose of this blog is to make people aware that insurance companies should be offering true value instead of specious advertising that totes immeasurables such as customer satisfaction and service.

I would also ask that you notice how little difference there is in the above percentages and ask yourself how companies can save you big money by switching.

Based strictly on my personal experience . . . and my undisclosed criteria and personal bias, I would select the following top ten from the same list of top twenty-five companies.

1.)   Travelers’

2.)   Auto-Owners

3.)   Nationwide

4.)   Liberty Mutual (Safeco)

5.)   Progressive (When an independent agent is involved)

6.)   Mercury

7.)   Erie

8.)   American Family

9.)   Allstate

10.) State Farm

   

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Jim operates an insurance agent network called Insurance Partners, aggregating agents in the Midwest for over 25 years. He was National Agent of the Year for Metropolitan in 1993 and Midwest Agent of the Year for Travelers in 2011. He served as a founding board member of the Surplus Lines Association of Minnesota.

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