State Farm to Offer Insurance Premium Relief to Customers

April 10, 2020
1382 Views

The largest auto, property, and casualty insurance provider in the United States is the latest company to announce relief for customers during the Coronavirus outbreak.

Following moves by major banks to defer mortgage payments, State Farm has announced that it will slash up to $2 billion worth of premiums owed by customers on around 40 million vehicles. It is one of the largest direct to consumer relief programs of its kind. It is expected to benefit around 21 million households in the United States.

Labeled the “Good Neighbor Relief Program”, it will apply a 25% credit to premiums that are due between March 20 and May 31. It is currently understood that all State Farm customers will be eligible for the program.

Other Major Insurers are Offering Refunds or Credits

Although State Farm is privately listed, its new program could directly benefit investors who have auto insurance policies with the company.

Allstate (NYSE: ALL) is another major insurer that is offering a relief program. It will give customers a 15% credit on their upcoming premiums. Geico Insurance, owned by Berkshire Hathaway Inc. (NYSE: BRK.B), will also offer a 15% credit this month.

American Family Insurance has a slightly different approach. This private company is offering a one-off $50 refund to existing policyholders.

Farmers Insurance and 21st Century Insurance will reduce April premiums by 25%. USAA, a bank that offers insurance for military members, will offer a 20% policy credit for up to two months.

How Can the Insurers Afford to Offer Discounts?

Investors in publicly traded companies like Allstate and Berkshire Hathaway may have concerns about the costs of these programs and discounts.

Insurers are currently benefitting from huge windfalls thanks to fewer policy claims. Accident, theft, and damage claims are declining, due to millions of Americans being confined on stay-at-home orders. Insurers can likely completely cover the costs of these relief programs without experiencing any significant loss.

It is partially because of the current windfalls that companies like Allstate and Berkshire Hathaway are tracking strong stock growth over the last five days. The lower cost of insurance is great news for Americans during this difficult time. For those that are invested in companies like Allstate or Berkshire Hathaway, recent stock growth is reassuring.

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