The Markets Right Themself - Progressive Increasing Rates - Chicagoland Sportbikes
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post #1 of 15 (permalink) Old 08-10-2012, 10:22 AM Thread Starter

 
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The Markets Right Themself - Progressive Increasing Rates

Just wanted to share some friendly news. I'm very much into understanding business and our crazy financial markets. For the longest time I could not determine how Progressive and Geico were able to have such low rates. Compared to the insurance market, their rates were crazy low. In this business, you take in premiums, invest them, and pay out claims.

Considering companies normally don't take in enough premium to pay claims (that means they must make investment profits to survive), I couldn't figure out how they were able to do it. Geico is owned by Berkshire...so maybe Warren being the greatest investor of all time was able to somehow get away with it, but Progressive...no way. So I figured, it was only a matter of time before it caught up to them. And in this article, the CEO even states, it caught up to them and they didn't react in time, so they're a little late increasing rates.

Anyway...others may be interested in how this stuff works, so I'm passing it on. (P.S...Warren is not going to be in charge forever, and my predicition is that his successor will not be able to get the same returns as him, and Geico will be in trouble at that time, and see huge rate increases just as Progressive saw here).

Progressive cranks up rates in Illinois


By Steve Daniels August 07, 2012

View All of Today's News Headlines

(Crain's) — Progressive Corp., the third-largest auto insurer in Illinois, has sharply raised its rates in the state, in many cases by double digits.

In an unusual move for a company that has won market share here and elsewhere by emphasizing cheap rates, Mayfield Village, Ohio-based Progressive last month cranked up prices in Illinois by as much as 11 percent.

Rate hikes ranged from 5.5 percent to 9 percent for customers who bought directly from Progressive, online or through a call center. Those who bought from an independent agent will see an 11.3 percent increase.

Illinois isn't alone. Progressive CEO Glenn Renwick has written and spoken to investors recently about the company's need to boost rates nationwide, largely because of higher claims costs.

In an Aug. 2 letter to shareholders, Mr. Renwick wrote, “While fixing cars or people, our costs have turned up rather significantly and quickly.”
He lamented that Progressive had been several months too late in acting on the cost trends, and as a result, felt forced to raise rates more dramatically than it would have liked.

In an Aug. 3 conference call with analysts, Mr. Renwick said he hoped Progressive wouldn't see customer retention slip because of the rate hikes. “We have a very competitive position in the marketplace,” he said. “Even a rate increase may not necessarily take us out of that competitive position in certain circumstances.”
He said that rate increases throughout the country would be in the mid-single digits.

"We routinely review market and business conditions so that we can ensure our policies are accurately priced," a spokesman wrote in an email. "It is our goal to offer competitive rates while at the same time meeting our profit targets. We believe that even with our rate increase, we will be competitively priced and have tools that can help manage their rate. We advise all consumers to shop around so they can find the appropriate coverage and prices that meet their needs."

A Progressive spokesman didn't have an immediate comment on why Illinois' increases generally are higher than that.

Of the top four dogs in the auto insurance business, Progressive is hiking rates the most in Illinois. Chevy Chase, Md.-based Geico increased prices by 2.5 percent in May.

Likewise, Northbrook-based Allstate Corp., the state's-second largest auto insurer, raised its auto rates by 3 percent to 5 percent in May.

The exception is Bloomington-based State Farm Insurance Cos., by far the largest insurer of vehicles in Illinois, which trimmed its rates in December by 2 percent.

Peter Katowicz
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post #2 of 15 (permalink) Old 08-10-2012, 10:28 AM
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Interesting, I would have thought that the premiums more then made up for the claims paid out.

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post #3 of 15 (permalink) Old 08-10-2012, 10:37 AM
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Originally Posted by gsd656 View Post
Interesting, I would have thought that the premiums more then made up for the claims paid out.

Agreed.
"Thats insurance"

If not then why is medical so booming yet pays out a crapton more and charges more.

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post #4 of 15 (permalink) Old 08-10-2012, 10:59 AM
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All insurance companies are for-profit, and when 1 raises their rates, the others follow, more often than not. They can still argue that they are "competitive" with other companies, as long as they don't raise their rates higher than the rates of the others. So it's still all a big crock of sh!t.

Airlines do similar things. Example: AA announces they're going to charge $50 per bag, then the others do exactly the same thing a day later, etc.

It's all part of the "screw the customer" movement currently being played by all companies.

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post #5 of 15 (permalink) Old 08-10-2012, 12:41 PM
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Progressive raised their rates in Wisconsin as well. I'm no longer a Progressive customer after 7 years of having house, auto, bike under them. When I called to ask WHY a 30% increase on my policy was required, they indicated a recent review of their payouts for Wisconsin exceeded their income, so rates had to go up. So in line with the article.
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post #6 of 15 (permalink) Old 08-10-2012, 01:20 PM
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post #7 of 15 (permalink) Old 08-10-2012, 01:49 PM Thread Starter

 
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Quote:
Originally Posted by gsd656 View Post
Interesting, I would have thought that the premiums more then made up for the claims paid out.
In 90 years, State Farm has only made an "underwriting profit" (that's what its called when you take in more money from premiums than claims paid out)...get this...8 times. That means for 82 years they better be good at investing!!

Quote:
Originally Posted by GixxerDave View Post
All insurance companies are for-profit, and when 1 raises their rates, the others follow, more often than not. They can still argue that they are "competitive" with other companies, as long as they don't raise their rates higher than the rates of the others. So it's still all a big crock of sh!t.

Airlines do similar things. Example: AA announces they're going to charge $50 per bag, then the others do exactly the same thing a day later, etc.

It's all part of the "screw the customer" movement currently being played by all companies.
Not correct. State Farm is a mutual company...if we make excessive profits, they're returned to the policyholders as dividends. A mutual company needs to make only enough money to pay expenses (operations/claims/etc), save enough for a rainy day, and the rest belongs back to the policyholders, as they are in essence, the shareholders.

Now, public companies...those ARE purely for profit.

Peter Katowicz
State Farm® - Agent
108 E Lake St. Unit 2
Bloomingdale, IL 60108
Office: (630) 980-9809
Fax: (630) 980-9858
[email protected]
www.PeterIsMyAgent.com

Benjamin Franklin - “It is a strange anomaly that men should be careful to insure their houses, their ships, and their merchandise, and yet neglect to insure their lives”.
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post #8 of 15 (permalink) Old 08-10-2012, 02:00 PM
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Quote:
Originally Posted by PolishPete View Post
In 90 years, State Farm has only made an "underwriting profit" (that's what its called when you take in more money from premiums than claims paid out)...get this...8 times. That means for 82 years they better be good at investing!!



Not correct. State Farm is a mutual company...if we make excessive profits, they're returned to the policyholders as dividends. A mutual company needs to make only enough money to pay expenses (operations/claims/etc), save enough for a rainy day, and the rest belongs back to the policyholders, as they are in essence, the shareholders.

Now, public companies...those ARE purely for profit.
Very interesting bit of trivia.

As far as the "need only to" coment, well that is so subjective, but many might call it deceptive. I think most get that it is a business that needs to be in the black to continue operations, but once people see how many zeroes are behind all those numbers, they cringe when they think about paying their next premium.

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post #9 of 15 (permalink) Old 08-10-2012, 02:09 PM Thread Starter

 
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Very interesting bit of trivia.

As far as the "need only to" coment, well that is so subjective, but many might call it deceptive. I think most get that it is a business that needs to be in the black to continue operations, but once people see how many zeroes are behind all those numbers, they cringe when they think about paying their next premium.
This is true...but...think about the risk of a large disaster occuring, and billions needing to be paid out at one time. That money has got to be in reserve...so the companies have to make their own determination on how much needs to be saved, and deal accordingly.

But look at it this way. Apple is sitting on billions in cash...just becuase they want to have it for when an opportunity to invest in new technology, or buy another company comes up.

State Farm, as a mutual company, as well as other mutual companies...they need to hold on to the money to pay back clients who have claims.

When you look at it that way...you can't hate on the insurance companies for that.

But also to your point...yes, there are other insurance companies out there who do look to make a profit, becuase they have shareholders to please.

Peter Katowicz
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Bloomingdale, IL 60108
Office: (630) 980-9809
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post #10 of 15 (permalink) Old 08-10-2012, 02:17 PM
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Quote:
Originally Posted by PolishPete View Post
This is true...but...think about the risk of a large disaster occuring, and billions needing to be paid out at one time. That money has got to be in reserve...so the companies have to make their own determination on how much needs to be saved, and deal accordingly.

But look at it this way. Apple is sitting on billions in cash...just becuase they want to have it for when an opportunity to invest in new technology, or buy another company comes up.

State Farm, as a mutual company, as well as other mutual companies...they need to hold on to the money to pay back clients who have claims.

When you look at it that way...you can't hate on the insurance companies for that.

But also to your point...yes, there are other insurance companies out there who do look to make a profit, becuase they have shareholders to please.
Oh I get it Pete. It is just that the insurance industry is hard to swallow for people.

You typically get the: "I am a good driver and never been in an accident and I am still paying xxx and they keep on raising my rates with everyone else", and the "why are these people buying homes in xxx area when they know that xxx and xxx happens there all the time and now I am paying more because they got their payouts".

Since peoeple do not see the benefit of insurance until they are up shits creek, it is harder for them to spend the money on it then on an over priced toy from apple, which they can hold and play with right a away. Even tough it will be replaced by a newer and more fabulous toy in six months.

Greg

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post #11 of 15 (permalink) Old 08-10-2012, 02:28 PM
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are insurance companies insured?

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post #12 of 15 (permalink) Old 08-10-2012, 03:42 PM
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are insurance companies insured?
Good question. I would guess they are self insured for things to a certain amount and then the remaining is underwritten by another company.

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post #13 of 15 (permalink) Old 08-10-2012, 03:46 PM
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are insurance companies insured?
Yeah, just like banks are insured.

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post #14 of 15 (permalink) Old 08-10-2012, 09:10 PM
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Yeah, just like banks are insured.

Insured by the govt without a deductible!

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post #15 of 15 (permalink) Old 08-11-2012, 01:10 AM
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I have progressive and my rates dropped. Go figure.

Just waiting to get a "new" truck before switching back to SF.

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