Are Mutual Insurers the Best Value Car Insurance Companies?

Can one segment of vehicle insurance market be better than the other? If so, how to determine which are the most economical automobile insurance carriers? There are certainly plenty rumors and arguments for and against. But can ownership statues of insurers be indicative enough as to which types of insurers are the best value auto insurance companies? This post will look at the topic and one particular study below.

Are Mutual Auto Insurance Companies Better & Cheaper?

Often we come across this notion that mutually owned car insurance companies are cheaper and better. There are people who specially look for insurers with mutual ownership rather than publicly traded corporations. In other words, companies that are accountable to their shareholders vs. companies who have nobody to report to but their policyholders. When it is put like that it is easy to see why people expect companies with mutual ownership do better. But is it really important who owns your insurance company and should you care?

It is difficult to generalize and say one type of insurers are always best and cheapest. However, mutual companies may have stronger following just because of sense of ownership people have about them. The largest auto insurance company in the United States is State Farm and it is mutually owned company. It has nearly 19% of auto insurance market and sells nearly twice more policies than the nearest rival Allstate which is a publicly listed company with shareholders.

There are some experts claiming that mutual status of a company results in better following by its policyholders. Arguments can be made for and against. Not having shareholders to report to and show profits for can be good for a company. On the other hand, companies with shareholders may have to work harder to remain popular and increase their profits. GEICO is a good example to the latter as they have been increasing market share in recent years by offering cheap auto insurance. This may push them to be more cost effective and again may make them greedier. This topic is really open to arguments from all angles.

Many people never even think about it. They are not buying the company and just buying a 6 month car insurance policy. They may look at the price first and only get into this conundrum when the price and coverage is exactly the same. But it isn’t hard to understand the sentiment behind preferring a mutual insurer.

Best Value Car Insurance Companies

Luckily, there are studies that looked into effects of ownership statues of insurance companies. According to ValChoice study, mutual insurers are the best value automobile insurance companies. The study concludes that ownership status isn’t as transparent to base a decision on and therefore drivers cannot see how mutual companies offer the best auto insurance for their dollars.

“Consumers overpaid for auto insurance coverage by a stunning $101 billion in the last five years. Roughly 90 percent of consumers could have gotten a better deal had they used a policyholder-owned insurer rather than one owned by shareholders.” says ValChoice

The findings of ValChoice study are pretty conclusive. The best value auto insurance companies are the mutual companies that are owned by their policyholders and paying them dividends. Over a five-year period from 2011 through 2015, these insurers paid out an average 72.6% of their premiums in claims and publicly held insurers with shareholders to satisfy paid 62.8% of their premiums in claims. The difference is nearly 10%!

Publicly traded car insurance companies have shareholders to please and this may conflict with pleasing policyholders. Mutual auto insurance companies don’t have such problems as their policyholders are their owners and this explains how they can spare 10% more of their premiums to pay claims, in comparison to publicly traded insurers. That is why it is not hard to agree with the conclusion that the best value car insurance companies are mutually owned insurers. 

Mutual vehicle insurance carriers have around 50% market share and can be divided into two types; ones that pay regular dividends and the ones that don’t have regular dividend payment commitment. Above mentioned study concludes that the dividend paying mutual car insurance companies offer better value than the ones that don’t pay dividend.

Here is a list of mutual auto insurance companies that offer regular dividends; State Farm Mutual Automobile Insurance Co., USAA, the Automobile Club of Southern California, Amica Mutual and NJM Insurance.

The size of dividend payments is hardly a reason to choose these companies as it is on average about 2 – 3% of total premiums collected according to last 10 years results. To clarify, the reason is the bigger claim payments.

Also, companies like Nationwide and Liberty Mutual believe that they serve their mutual owners better by offering cheaper policies than paying regular dividends. This is another way of looking at it and it may be a less gimmicky and more impactful way of looking after your policyholders. And this may explain why mutual car insurance companies are cheaper, according to the study.

How Does Mutual Insurers Offer the Most Economical Car Insurance?

ValChoice used data collected by state insurance departments and analyzed claims payment histories of 312 car insurers (98.5 % of the market). It used a metric known as the “paid loss ratio” in comparing the premiums these companies took in with the amounts they paid out on claims. Insurers with higher paid loss ratios dispense more of their premiums back to their policyholders as claim payments and therefore they are the best value vehicle insurance providers for policyholders.

The numbers tell the tale. Dividend-paying mutual insurers paid out in claims an average 72.6 percent of the premiums they earned. Mutual companies that do not pay dividends paid an average 64.5 percent, while publicly traded companies paid the least in claims: 62.8 percent of premiums.

Mr Dan Karr, founder of ValChoice, says, “The paid loss ratio is such a direct measure of the actual value of an insurance policy. If I’m paying money for insurance, it tells me how much is likely to come back to me if I have an accident.”

Mr Karr continues, “Consumers who buy from companies whose claims payments are lower are paying for lesser coverage. That value loss can add up to billions of dollars.”


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