Broke? Insurer CEOs are Rolling in Dough
Published in New England Automotive Report – Thomas Greco Publishing
Up and up and UP!
From east to west and north to south, drivers all over the country have seen significant increases in their auto insurance policies.
According to the US Bureau of Labor Statistics’ Consumer Price Index (CPI), the cost of motor vehicle insurance in the first half of this year rose by nearly 21 percent compared to the first half of 2023, an annual trend that has intensified since the pandemic. The average cost of premiums in the first half of 2019 saw an increase of just 1.6 percent compared to the previous year, yet from the first half of 2020 through the first half of 2024, auto insurance premiums increased by 51.7 percent – an average of nearly 13 percent per year! And an additional spike of 12.6 percent nationwide is predicted for 2025.
But some states have likely seen an even larger adjustment to their premiums. Insurify.com projects a 22 percent increase in 2024 nationally, but the insurance shopping comparison website also provided a breakdown by state, indicating that some states could see a rate hike of up to 61 percent! They predict a 40 percent increase for drivers in the Commonwealth and 34 percent for Connecticut policyholders. Rhode Island premiums were expected to increase by just 16 percent, slightly less than the national average, and Vermont’s by 13 percent. New Hampshire is set to experience one of the least significant increases at an estimated four percent.
Of course, such a huge jump has made a major dent in consumers’ pockets, so insurers and news outlets have sought to justify these increases by blaming inflation, the cost of repairs and claim frequency and severity. While there is some validity to these explanations, it seems worthwhile to dissect each culprit identified by carriers.
The annual inflation rate for 2023 was 4.1 percent with the current year’s rate hovering near 2.5 percent and experts predicting a continued decline in 2025. With rising inflation impacting the cost of – well, everything, it’s not exactly surprising that repair costs have increased. Examining the first half of 2024 compared to the same period in 2023, CCC Intelligent Solutions’ Crash Course Q3 2024 reports a 3.7 percent growth in the total cost of repair, driven largely by labor and parts costs…although Commonwealth repairers can attest to the fact that very little forward movement has been made when it comes to the labor reimbursement rates actually being paid by insurers!
Exploring the growth of severity and frequency is a little more complex. CCC Intelligent Solutions’ Crash Course Q1 2024 indicates that severity has outpaced general inflation, largely due to the higher cost associated with medical bills, reflecting an increase of 6.7 percent since 2022. Although the report asserts that auto collision frequency flattened out in the first half of 2023, it acknowledges, “Comprehensive paid claim frequency has continued to rise in recent quarters and appears to be at or near historic levels, likely a result of the storm activity.”
These factors are corroborated by the 2024 LexisNexis Auto Trends Report: “Both the severity and frequency of claims, including severe auto physical damage and bodily injury, have increased since 2020. Bodily injury severity has increased 20 percent in the post-pandemic years.”
While the fact that advancing technology has led to higher severity is apparent, many shops report that insurers object to paying for certain processes and procedures. At the same time, these same technological advances have largely mitigated some risky driving occurrences, with safety systems like lane departure warning and automatic braking, which would appear to reduce the frequency of claims.
Although the Insurance Information Institute (III) claims that auto insurers paid out 112 percent of premium dollars collected in claims in 2022, they also report a 2023 net written premium growth of 14.3 percent, “the highest in over 15 years and six points higher than the next-highest, reflecting rate increases to offset inflation-related loss costs.”
Yet, even as insurance carriers cry broke based on these figures, other numbers tell a different story.
III’s website identifies the top 10 writers of private passenger auto insurance in 2023 by direct premiums written as State Farm, Progressive, Berkshire Hathaway (GEICO), Allstate, USAA, Liberty Mutual, Farmers Insurance, American Family, Travelers and Nationwide. These premiums total over $243 million and account for 76.7 percent of written premiums in this category.
A look at annual and quarterly financial results for these insurers reveals varying tales; some acknowledge high earnings, while others share a sob story of their losses, but in either case, these insurance companies do not seem to be suffering from a major budgetary deficit based on what they’re paying their CEOs – these same 10 companies paid over a quarter billion dollars to their CEOs over the past two years!
Data for 2023 isn’t readily available as of the time of this writing, but New England Automotive Report was able to find estimated compensations for eight of these companies, which has been used in the following discussion.
Although State Farm reported a $13.2 billion underwriting loss in 2023, the company issued a record $118 billion in new policy volume and boasted a $3.5 billion increase in net worth (from $131.2 billion in 2022 to $134.8 billion in 2023). CEO Michael Tipsord’s 2022 compensation was $24.4 million, and while that reportedly dropped to just $17.6 million in 2023, that amount still reflects a 76 percent increase over his 2019 salary of $10 million. According to Payscale.com, the average State Farm employee earns $56,000 per year, which means Tipsord earned over 314 times more than the company’s average worker last year (which we’ll identify as “pay ratio” going forward).
Progressive’s 2023 net income was $3.86 billion, a 456.4 percent increase over 2022, and the insurer net worth is estimated at $93 billion. During an earnings call in October, Progressive reported a Q3 profit of $2.33 billion – more than double its net income of $1.12 billion for the same period in 2023. CEO Susan Patricia Griffith’s 22.7 percent compensation increase in 2023 took her earnings from $12.7 million (2022) to $15.6 million with a 218:1 pay ratio.
After reducing its staffing by 20 percent and increasing premiums by an average of 17 percent per policy in 2023, GEICO generated an underwriting profit of $3.6 billion last year, compared with a loss of $1.9 billion in 2022. The company suffered the highest loss in market share of these organizations, and that was reflected in CEO Todd Combs’ salary cut from $13.6 million in 2022 to just $10 million last year (cue world’s smallest violin), with a pay ratio of 130:1.
While Allstate’s 2023 Financial Report indicated a $316 million loss, a net worth of over $50 billion allowed the insurer to pay CEO Thomas Wilson $16.5 million last year, a decrease from his 2022 compensation of $18.9 million, though it still results in a 240:1 pay ratio.
According to USAA’s 2023 Annual Report, its net income of $1.2 billion helped increase its net worth by $1.7 billion, ending the year at $29.1 billion, though its assets total $212 billion. As a result, Steven Wayne Peacock walked away with $8.1 million, a 426.3 percent increase over his starting CEO salary of $1.9 million in 2020 and a pay ratio of 137:1.
Liberty Mutual’s new CEO Timothy Sweeney earned an estimated $15.5 million (a 187:1 pay ratio) in 2023 after his company hiked premiums across the country, including a 25 percent rate increase in California.
In 2022, Farmers Insurance CEO Jeff Dailey received $1.8 million more than he had the previous year, following the layoff of 11 percent of the company’s workforce and huge jumps in homeowners insurance premiums (more than $575 million across 42 states). He earned almost 136 times the average employee’s salary.
After reporting an underwriting loss of $1.7 billion in 2023, American Family reduced CEO Jeff Salzwedel’s salary from $6.7 million (2022) to $3.4 million; last year, he made just over a quarter of his 2020 earnings of $12.4 million. As a result, this company has the lowest pay ratio of just 33:1.
Travelers’ Allan Schnitzer received $22 million in compensation last year, an increase of 136.65 percent compared to $16.1 million in 2019, and a pay ratio of 378:1.
Last year, Nationwide reported its third consecutive year of “record sales” with $1.3 billion in net operating income and total adjusted capital of $25 billion, up nearly five percent from 2022. CEO Kirt Walker received $3.5 million in 2022, an estimated pay ratio of 43:1.
So, where does all this money come from when insurers keep claiming losses year after year?
Michael DeLong, research and advocacy association for the Consumer Federation of America, seems to have hit the nail on the head in an October 2023 statement: “CEOs are living high on the hog while increasing insurance premiums for people living paycheck to paycheck. Insurers are telling regulators that ordinary consumers have to pay much more for auto and home insurance because the companies are struggling with inflation and climate change, but they are quietly handing CEOs gigantic bonuses. Drivers are required to buy auto insurance and homeowners have to buy coverage to satisfy their loan requirements, so there needs to be more scrutiny of the rate hikes companies are demanding and the huge CEO paydays that are funded with customer premiums.”
So, while many consumers struggle to buy groceries, their insurance premiums continue to increase, lining the pockets of these executives while the companies they work for keep crying that they can’t afford to pay out claims.
AASP/MA, AKA the Alliance, leaders weigh in on this topic.
“These pay gaps in the insurance world are concerning and do not align with our industry whatsoever,” asserts Alliance Vice President Matt Ciaschini. “Whether we are talking about the gap between collision shop owners and employees or the disparity between what the insurers reimburse the consumer for a claim versus what auto body shops have posted for rates in their shops, these two worlds are in different universes. It is sad that we still have to struggle to pay and train our highly skilled technicians and appraisers, while we see the bloat at the top of the insurance carriers. This is a reason to take back the collision industry from the insurers and align ourselves with the consumers as allies against a common foe, an opponent that is not just the insurers but corporate greed in general.”
“Sadly, what we have seen historically is that insurers have been very successful in making the figures work for them when applying for rate increases,” agrees AASP/MA Executive Director Lucky Papageorg. “They have and will continue to work with smoke and mirrors to attempt to mask what is nothing more than corporate greed. They see and fully understand what is going on in the collision repair industry; they just won’t change until someone or something makes them change! I personally remember speaking with a high-level executive in the property damage department back in the late ‘90s and asking him, ‘Where do you think your insureds will be getting their vehicles repaired in the future? How long will they have to wait to get their vehicles repaired as you continue to push collision repairers out of business?’ He responded, ‘It’s not my problem, and it won’t be yours either. We will both be long gone before that happens!’ Well, I am still here, and it’s absolutely my problem! I’m sure that I’d hear the same answer if I posed my question to today’s insurers.
“To this day, insurers continue to use their well-oiled and proven tactics to convince legislators, regulators and – to a degree – the public that they are deserving of the increases they request, and the high premium rates are not their fault,” he continues. “They continue to do all sorts of things that only add to the cost of repairing a vehicle, such as their administrative costs and replacement rental bills, through their actions of ‘deny, delay and defend’ because they can then point at those expenses to warrant the increase they are requesting. It is a self-rewarding method that only benefits them and allows them to receive undue enrichment. They create most of the issues that cause the escalating administrative costs they experience. Unlike collision repairers, who do not have the same ability to pass along those same expenses, insurers are guaranteed a profit.”
