Do Mutual Auto Insurance Companies Offer the Best Value?

Can one segment of the market be better than the others based on who backs them up or how they are structured financially? There are certainly plenty rumors and arguments for and against. But can ownership statues of automobile insurers be indicative enough as to which type is the best value? This post will look at the topic and one particular study below.

Are Mutual Car Insurance Companies Cheaper & Better?

Often we come across this notion. There are people who specially look for ones in which they can have a share of ownership rather than publicly traded corporations. In other words, the ones who 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 them do better. But is it really important who owns it and should you care?

It is difficult to generalize and say one type always trumps. However, certain names may have stronger following just because of sense of ownership people have about them. The largest automobile insurance carrier in the US is mutually owned State Farm. It has nearly 19% of auto market and sells nearly twice more policies than the nearest rival Allstate which is a publicly listed with shareholders.

There are some experts claiming that this status results in strong policyholder support. Arguments can be made for and against. Not having shareholders to report to and show profits for can be good. On the other hand, private investors can push the management team harder to remain popular and increase profits. GEICO is a good example to the latter as they have been capturing more of the market in recent years. 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. That is why we need to look at figures and researches on the subject to judge evidence either way.

To be perfectly honest, many motorists never even think about it. They are just buying a 6 month car insurance policy. They may look at quotes first and only get into this conundrum when the price and coverage is the same or near enough. But it isn’t hard to understand the sentiment behind preferring the former.

How to Know Who Offers the Most Return for Money?

Luckily, there are researches that looked into effects of financial backing. According to ValChoice study, there is a clear frontrunner. Nevertheless the study points out that people may not be aware of these things to base a decision on and therefore drivers cannot see how handful of select ones can outperform others and miss out on savings.

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

The findings of the study are pretty conclusive. The best value auto insurance companies are the mutuals that are owned by their policyholders and paying them dividends. Over a five-year period from 2011 through 2015, they 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%!

When the interests of investors and customers conflict there is a high chance that investors will win because they are the ones who can vote on who will get the top job and what direction the firm should take. When a company doesn’t have such problems since the owner and the customer are the same they can be more generous when it comes to paying claims. All these are not hard to understand however, sparing ten percent more for paying off claims is a huge difference. This fact can certainly swing customer opinions and influence choices if they were aware of this correlation at the time.

Mutual vehicle insurance companies 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 former offer better value than the latter. Here is a list of such insurers that offer regular dividends; State Farm, USAA, the Automobile Club of Southern California, Amica and NJM.

The size of dividend payments is hardly a reason to choose them 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 settlements offered by them.

Also, others like Nationwide and Liberty Mutual believe that they serve their 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 customer. They don’t need to wait for returns when they can get lower rates each time they renew.

How Does Mutually Owned Auto Insurers Offer the Best Value?

ValChoice used data collected by state ins. departments and analyzed claims settlement histories of 312 of them (98.5 % of the market). It used a metric called the “paid loss ratio” in comparing the premiums they took in with the amounts they paid out. Carriers with higher paid loss ratios dispense more of the premiums back to their policyholders to compensate the losses suffered and therefore they offer incredible return. They simple put back large chuck of money they collected back to society helping motorists recover.

The numbers tell the tale. Above dividend-paying insurers paid out in claims on average 72.6 percent of the premiums they earned. The ones that do not pay dividends paid 64.5 percent, while publicly traded ones paid the least at 62.8 percent.

Mr Dan Karr, founder of ValChoice, says, “The paid loss ratio is such a direct measure of the actual value of a policy. If I’m paying money for coverage, 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 settlements are lower are paying for lesser coverage. That loss can add up to billions of dollars.”

The study has looked at the issue from a pretty valid angle and came up with very clear data and strong conclusions. If the compensation figures are what you are really interested you now know how to vote and which ones to go with. Luckily there are a few choices to consider as well that can allow you to get good coverage at an affordable price.

Essentially what you expect from a policy can be very influential in the selection process. Let’s face it; large numbers of drivers hardly ever need rescuing because they don’t have accidents or incidents for decades. So, how much should a pretty careful driver who lives in a nice and safe hamlet and don’t really expect to have any issues in the near future worry about the figures above?

It is a fair argument that most of them would make your losses good if you suffer an accident and defend you against liability cases. Granted that some will be more helpful and generous and the others may be extra careful and stingy. But the bottom line is that more or less you will get sufficient compensation regardless.

We also know that choosing the cheapest can save us thousands of dollars over the years. So, wouldn’t it be more prudent to save now and not worry about getting less in case of accidents since the discounts you got over the years will be large enough to negate the presumed shortfall?

This argument won’t work when the mutuals are as competitive as the rest and this may be the case with many of them including State farm. There is no chance of cornering nearly 20% of the market if your prices aren’t good. It would be very interesting to see another study looking at the topic from the competitiveness angle.

In any case, it is clear that those mentioned above are pretty solid names and they have decent followings. This is a confirmation enough that they are doing a few things right. So, let’s conclude this post by saying that when the quotes are pretty close to each other you might as well choose a mutual automobile insurance company and take a view at other times.


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