Auto policy from scratch

[Al3x Lee]

Look up the stats on auto insurance combined ratios,

Pft. Combined ratio? Northwoods is going to teach you a lesson on that. Combined ratios are worthless when the papers he's read have demonstrated that insurance companies are renowned for their extraordinary ability to waste resources and operate in the most inefficient manner possible. The insurance companies get it, why bother with careful cost management and streamlined processes when you can just throw money around like confetti?

It's better to ignore all those pesky industry reports and financial analyses that clearly demonstrate the challenging profitability landscape insurance companies face. Those are just around to try and keep people like Northwoods thinking the mean big old insurance companies are struggling to turn a huge profit. Now that he's figured it out, they're doomed and the fraud of their combined ratios are exposed.

Cheers to Northwoods

 

[northwoods2]

Compulsory coverage cost is about 1/6 of the total premium. The rest is expenses.

LOL. So, you honestly believe a client paying 1,000 every 6 months only pays $160 for coverages & the other $840 is consumed by the carrier fat cats, overhead & agent commission. Direct paid claims in a good stretch are 60-65%, LAE expenses(adjustors, lawyers, etc) related to claims another 8-11%, 25-30% carrier expenses, wages, commissions, tech costs.

That is exactly what is going on. The correct terminology is pure premium. It's between 1/5 and 1/6 of the total premium on full coverage.

Look up the corporate campus for State Farm in Bloomington, Ill.
2,000,000 sq ft. and 76,627 employees at that location alone. This figure does not include their captive agents. The payroll alone for Bloomington is around $3,000,000,000/yr.

Yes, 10% profit would be a banner year for any insurance carrier. Their sloppy business
practices will never allow a 30% premium cut.

 

[northwoods2]

So, with several hundred insurance carriers competing nationally, you believe they all are in on a price fixing scheme to keep rates high & none of them have broke from the scam? Look up the stats on auto insurance combined ratios, they have never been close to 10% profit in my 30 years at looking at the industry. On occasion some have some years where they may get close to that, but many years where many lose 10-20% after claims & expenses, etc

Price fixing?? No. The bureaucratic monsters that they have all become have whittled their profits to the point where breaking even is cause for celebration. 76,000 employees?? What the hell do they all do?

 

[Allen Trent]

This figure does not include their captive agents. The payroll alone for Bloomington is around $3,000,000,000/yr.

3B out of 70B PC Premium is 4% of total premiums, not sure that 4% labor cost is excessive, plus this doesn't include the fact that they have life premiums, etc. I am sure their payroll is much higher than $3B

So, you believe they intentionally keep excessive employees & payroll so they can charge customers higher premiums rather than charging same premiums & lowering expenses so they earn greater profit. They intentionally keep expenses higher to be less competitive in an overly competitive industry with several hundred PC carriers.....ok

 

[Allen Trent]

So, with several hundred insurance carriers competing nationally, you believe they all are in on a price fixing scheme to keep rates high & none of them have broke from the scam? Look up the stats on auto insurance combined ratios, they have never been close to 10% profit in my 30 years at looking at the industry. On occasion some have some years where they may get close to that, but many years where many lose 10-20% after claims & expenses, etc

Price fixing?? No. The bureaucratic monsters that they have all become have whittled their profits to the point where breaking even is cause for celebration. 76,000 employees?? What the hell do they all do?

Google tells me they have 57,000 employees & 91,000,000 active policies.......which is almost 1,600 active policies per employee. Doesn't seem too extreme to me relative to most industries.

 

[scagnt83]

Compulsory coverage cost is about 1/6 of the total premium. The rest is expenses.

LOL. So, you honestly believe a client paying 1,000 every 6 months only pays $160 for coverages & the other $840 is consumed by the carrier fat cats, overhead & agent commission. Direct paid claims in a good stretch are 60-65%, LAE expenses(adjustors, lawyers, etc) related to claims another 8-11%, 25-30% carrier expenses, wages, commissions, tech costs.

That is exactly what is going on. The correct terminology is pure premium. It's between 1/5 and 1/6 of the total premium on full coverage.

Look up the corporate campus for State Farm in Bloomington, Ill.
2,000,000 sq ft. and 76,627 employees at that location alone. This figure does not include their captive agents. The payroll alone for Bloomington is around $3,000,000,000/yr.

Yes, 10% profit would be a banner year for any insurance carrier. Their sloppy business
practices will never allow a 30% premium cut.

Here is the problem with using State Farm as your comparison. State Farm sells a whole lot more than just Auto Insurance... a whole lot more than just Home and Auto.

1. Life Insurance (3 or 4 different lines)
2. Disability Insurance (2 different lines)
3. Long Term Care
4. Hospital Indemnity
5. Medicare Supplements
6. Pet Insurance
7. Umbrella
8. BOP
9. Workers Comp
10. Surety Bonds
11. Contractors Policy
12. Personal Property (jewelry/art/etc)
13. Farm Insurance
14. Identity Protection Insurance
15. Rental Property/Landlord
16. Travel Trailer Insurance
17. Motorhome Insurance
18. Boat Insurance
19. Off Road Vehicle Insurance
20. Motorcycle Insurance
21. Home Insurance
22. Renters Insurance
23. CAR INSURANCE

You are comparing your business model of 1 product line.... to their business model of 23 ACTIVE product lines.

That does not count all of the old policies they have sold since the 1950s that they must still service. Just saw a SF Whole Life policy from 1965 the other day. Someone in the HO has to internally service that policy to some extent.

You need to find a different carrier to compare yourself to if you want a realistic comparison.

Im not an auto ins guy, so Im not sure who to use. But SF is not the one to compare your model to.

 

[scagnt83]

Wait! I forgot about the Broker Dealer and investment side!

24. Mutual Funds
25. Variable Annuities
26 Fixed Annuities
27. 401k Plans

So its 27 product lines vs. your 1.

PLUS, they own/operate a Broker Dealer that is registered with FINRA.

Now does it make more sense why they are so huge?

Find a carrier that only does auto to compare yourself to. Then get back to us with the numbers.

 

[whatyouwantfinally]

Al3x:
did not have to wait long for a flame. Seems like you know nothing of the way insurance is priced. Compulsory coverage cost is about 1/6 of the total premium. The rest is expenses. Once you read how much money the ins biz wastes, and read detailed studies done over the years on how better efficiency can be had you may see better what's going on inside these huge corporations and how wasteful they really are.
you need not worry - these changes and many others I will write about will have no effect on a closed mind like yours.

I'm a math guy, an insurance guy and an entrepreneurship guy. I'm also low for the month on good deeds done, so here goes.

There are few industries with less potential for "efficiency" savings than auto insurance. Most of these technologies/strategies we've been seeing over the last 10-20 years are about identifying people who should be paying MORE for their coverage, not less. They aren't marketed that way (of course), which has lead outsiders like yourself to view the issue upside down.

As others have pointed out, the reason some of these insurers have so many expenses (employees) is because they use auto insurance as a way to bring in customers who they profit off of through OTHER lines/services.

Unless your real goal is to pocket some investor $ and bail, do not do this. If that is your goal, you need to stay far, FAR away from forums like this.

 

[northwoods2]

Some juggernaut. Below is a cut from their own website. Figures from 2022.

Auto – The State Farm auto insurance business represented 61 percent of the P-C companies’ combined net written premium. Earned premium was $45.7 billion. Incurred claims and loss adjustment expenses were $48.4 billion and all other underwriting expenses totaled $10.8 billion. The underwriting loss was $13.4 billion.

 

[northwoods2]

Unless your real goal is to pocket some investor $ and bail, do not do this. If that is your goal, you need to stay far, FAR away from forums like this.

You are not much of an entrepreneur if you cannot see a better approach to marketing insurance than the status quo.