Tuesday, November 16, 2010

My 20 Years with State Farm Insurance

I have been a customer of State Farm longer than many of their Agents have worked for them.  In some cases, it seems like I have been a customer of them before they were born.

I suppose after writing my "20 years with Northwestern Mutual Life" I should give equal time to my other insurer, State Farm. I have had a relationship with State Farm for over two decades now, and it is rapidly coming to a close.  And I have purchased or looked at nearly all of their products in their lineup.  My basic reaction, long-term, was not positive.  Over time, the company has changed - and not for the better.

Note that there are a lot of "State Farm Sucks" websites and even a Facebook page, but most of these are pretty stupid.  Most are related to car insurance, and most are just from whiners who complain that their car accident wasn't like an all-expenses paid spa vacation.  For example, one complainer writes that when they totaled their "cherry" 1993 Mustang, that State Farm only paid out $3000, which is the book value on a load like that.  Frankly, even buying collision insurance on a car worth less than $10,000 is pretty stupid, as I have noted before.  The beauty of having a car worth $3000 is that you don't have to bother with collision insurance.  And if you think $3000 is a lot of money, your priorities are screwed up.  So, take sites like that with a grain of salt.

There are some real, systemic, problems at State Farm, and these go beyond folks who complain that they don't get a free car when they total their clapped-out econo-box.  But let's take a look at my experiences over 20 years, and you might see what I am getting at.

I started with State Farm back in 1987 or thereabouts, when I moved to Washington, DC.  We needed a car policy and a renters policy, and we went to a local agent, who helped us out.  At the time, we didn't have a lot of money, but I did not really aggressively shop insurance coverage.  Like most young people, I was brainwashed into believing that I was lucky to get any coverage at all.  And I did not review my policies to see if I really needed a lot of junky add-ons like car rental, uninsured motorist, health care, etc.

But the service was good, and we stayed with that agent for nearly two decades, until she unexpectedly retired.  But more about that later.  We ended up buying a number of policies from her - homeowners policies for up to five properties at one time, six cars, a boat, and four whole-life policies.  We also had an umbrella liability insurance policy with State Farm.  So we were good customers, or so we thought.  State Farm seems to have a different opinion.  You'd think having 17 policies (at one time!) with a company would make you popular with them.  But such was not the case.

The first oddity occurred after State Farm got nailed in that famous "toxic mold" case in Texas.  It was tragic.  A family moved into a house, not knowing that it had been abandoned halfway through construction, for many years.  The place with loaded with toxic mold to the rafters, and soon after moving in, they got sick - very sick - and I think one person died and another was brain damaged.

Shit happens, as they say, and the insurance company had to pay out - big time - in that case.  But a funny thing happened.  When I went to State Farm to get a homeowner's policy for one of our rental properties, I was told that they were no longer writing homeowner's policies - at least for new clients.  Their response to risk was to stop insuring, which to me, seemed odd.  If there is a new risk out there, quantify it, and then adjust your premiums.  You make money selling policies, not in avoiding risk.

The next odd thing was when we bought a place in Pompano Beach.  State Farm was reluctant to write policies on beach properties (and still does not).  We were fortunate to be within the "redlined" area and were able to get a policy.  But our experience with the local agent foreshadowed events to come.  When you called the agency, if you got the "good" assistant, things got taken care of in no time.  But if you called the agency and got the "bad" assistant, well, you'd spend days trying to untangle how she would screw up your policies.

We never filed a claim on our homeowner's policies (which is normal - or should be - for most people).  So I cannot comment on that aspect of them.  Service was OK, but the premiums were not the lowest around.  I finally stopped using State Farm when they raised the rates on my NY property to over $1300 a year.  I found a policy from a local independent agent for about $800.  $500 a year is not chump change.  I had to switch.

When we moved to Jekyll, we were told that State Farm would not write there.  So we were forced to shop with other companies.  This has been one of the primary motivating factors for us to leave State Farm - if you are booted out the door, it gives you incentive to shop elsewhere.  And again, State Farm is cherry picking here - instead of assessing risk and adjusting premiums, State Farm just says "NO" and lets other companies take the risks - such as Nationwide.  And we are talking a basic fire/theft/vandalism policy here, too.  Wind (hurricane) and flood are handled by other agencies.  It is puzzling that State Farm cannot assess the risk of a house burning down because it is next to water.

UPDATE:  One reason State Farm is reluctant to write near the water is Hurricane Katrina.  Many people filed wind and flood claims on their fire policies, which of course do not cover wind and flood damage.  Some stupid Judges in Alabama decided that a fire policy should cover flood and wind even though it explicitly excluded these damages!   I think State Farm won on appeal, but this is what happens when Left-wing judges (from Alabama, no less) try to re-write policies to stick it to "the big mean old insurance companies."   State Farm DID get screwed there.

When we moved our car policies to Brunswick, the service problem got worse.  The local agent also had a "good" assistant and a brain-dead one.  And the brain-dead one wanted to be so helpful!  But she canceled our car insurance by accident, which lead to some problems with the authorities.  I was fortunate in that the fine I had to pay was less than the amount of the insurance I would have paid for the interim, but if I had had an accident during that time, things could have been far, far worse.

So I switched to another State Farm agent.  There are many to choose from.  As I noted in another post, it seems that if you have a pulse, you can be a State Farm agent, as they have offices all over and are aggressively recruiting people like an MLM scheme.  The new agent promised better service, but wanted to also provide financial advice.  As I noted in the linked article, this was a disaster, as her "advice" was to cash in my life savings, which were spread among a large disparate number of investments, and put them all in one account with her, netting her a 5% commission on the proceeds.

Gee, thanks, but no thanks.  I said "NO" and moved on from State Farm.

So I finally switched to GEICO, for car insurance.  They provide great service on their website (State Farm's is primitive and hard to use, in comparison) and their call center is the best.  They almost always answer on the first ring.  And the cost was far less than from State Farm.  I dumped collision, uninsured motorists, and other "junk" coverage, and now pay about $30 a month for basic coverage.  I also have an umbrella liability policy with them as well.

UPDATE:  Since writing this, I added collision and comp, which brought the monthly rate up to about $50 a month per car.  Still a lot cheaper than other companies. 

Speaking of car insurance, we did have two claims with State Farm when my partner rear-ended people with our cars (a pattern here, of distracted driving!).  In the first case, we went to a repair facility recommended by State Farm and they did an OK repair job on what was then a $6000 car.  The second time, I went to their claims center and they wrote me a check and I repaired the car myself.  They were efficient, and like most car insurance companies, will not pay out more than the car is worth, in repairs.  People expecting otherwise are foolish.  I have no real complaints there, it is about what you would expect.

UPDATE:  I had a hail damage claim with GEICO.   I went to the claim center, they cut me a check.  End of story.

So, on the car insurance claims front, I have no beef with State Farm.  It is the service and prices, etc. that suck, as well as in their trending toward investment counseling.

We also bought four whole life policies from State Farm over the years.  We bought one $100,000 policy, and it allowed us to buy several $25,000 additions.  The main problem we had was that when I asked my agent whether these additions were a good idea, the Agent just looked up at the ceiling and said "Perhaps".  I should have taken their body language as a sign and taken the hint.  But why can't an Agent just come out and say "For someone in your situation, I would think this was not a good investment".

When we moved to Jekyll, we got a letter in the mail from our Virginia agent, who was handling the life policies and a homeowner's policy for our last investment property.  It just said that she decided to retire and that our polices were being transferred to another agent.

Service from the new agent was lacking.  I called to ask about coverage on the property (a condo) and was told that I could not increase coverage without an "inspection" of the property and that the agent wanted to meet me on the premises.  Since I don't live there, I took a pass.

But more disturbingly, the new agent kept having an associate call me to "arrange a telephone interview with Agent X".  As I noted in my NML posting, this sort of  posturing is a form of control - getting you to think the Insurance Agent is some sort of God-like person whose valuable time needs to be micro-managed in 6-minute intervals, while your time is worthless.  But given the vast explosion in the number of State Farm agents (check your inbox, you may already be one!) it is hard to believe that the agent's time could be that valuable.

And of course, the come-on was the same as with the agent in Georgia - they wanted a chance to pitch "State Farm Bank" services to me, and to get me to move all of my investments to their company.  Nice try.  Instead, I am taking my last bit of State Farm insurance and moving it to another company instead.

By the way, this "assistant" called me at 7:30 in the evening and would not let me go without scheduling an "interview" with Suzie Wong, the local Agent.  She had me on the phone for a half-hour.  I explained to her all the bad things that had happened to me with State Farm, including my horribly bad experience with the local agent trying to sell me investment plans, and she still would not get the picture.  I finally had to say, "Let me boil this down to you, in two words: Fuck You!  Do you understand that?"  She still persisted!  I finally had to hang up.

I asked an independent Agent in New York about this phenomenon, and he said, "Let me guess, you had an agent for many years and then suddenly you get a letter saying they have 'retired', right?"   I was floored.  How did he know?  "A lot of that going around these days," he replied.  The inference was that a lot of older agents were not willing to play ball with this investment strategy, and seeing the number of newly minted agents being cranked out (and infringing on their territories) decided to call it quits, instead.  I can't blame them.

State Farm seems to be pushing its investment vehicles more and its insurance less.  And they seem to be increasing the number of agents out there, which serves to cannibalize the territories of existing agents, who have fixed overheads in terms of office space, office assistants, and the like.  As a result, the agents have to cut costs, hire dumber assistants, and also flog more products to make more money.

I have an Agent in Ithaca, New York who has been pretty decent.  But at a craft fair, I was chagrined to see a young fellow touting himself as a new State Farm Agent as well.  Could the area support another agent?  If I was the first guy, I'd be pissed.  And I'm sure he was, too.  By the way, he is one of the few State Farm agents, other than my original one, NOT to screw things up or try to pull the "investment" scam on me.

At this point, the only remaining policies I have with State Farm are three life policies.  The primary is doing well - the cash value increases by more than twice the annual premium.  The two add-on policies are less lucrative - increasing in value by only half of the annual premium.  We may end up dumping these latter two policies, (UPDATE: We did) as they will take many years of negative equity before they pay off in any significant way, and are fairly expensive policies for the coverage provided.

Last year, after reviewing my NML policies, I decided to convert two of them to paid-up life policies and then receive dividends in cash.  I kept the original whole life policy, as the money paid in, in premiums, was more than doubled in terms of increased cash value.

So I decided to do the same with the State Farm policies - canceling the two $25,000 add-ons and cashing them in (total value, $5500).  This leaves me with just one life policy with State Farm, whose dividends are used to reduce premiums - with the cash value increasing by double the premium rate every year at this point.

The State Farm of today is different that the company I wrote with back in the 1980's and 1990's.  If you are a young person starting out, and need car insurance, I would suggest GEICO or other low-cost insurance.  Get a "paid for" car and drop collision coverage as soon as possible.  I would avoid whole life entirely, but think about a low-cost term life policy through your credit union or other affiliation, for at least a predetermined time, if you have children or other responsibilities.  For homeowners, I would shop aggressively, and go with the highest deductible possible with the cheapest company possible.

But there is no compelling reason to use State Farm as a "brand" choice for insurance.  And since they no longer provide "one stop shopping" for many folks, there is little point in being brand loyal to them, as I was for 20 years.  It all made sense when I could insure my house, my car, my life, my boat, my liabilities, at a reasonable cost, with one phone call to my agent.  When they started cherry-picking coverages, and I had to call three agents to get coverage, the compelling reason to go to State Farm diminished.  When they started annoying me with their aggressive marketing for their investment services, that was the last straw.

If a State Farm agent's assistant calls wanting to schedule an "interview" to discuss your investments, just hang up the phone.  Their investment advice is pretty self-serving.

I was a big fan of State Farm for over two decades - longer than most of their Agents have worked for them, or perhaps have even been alive.  It is sad to see a place change like that, but they seem to be convinced that selling investments is a better gig for them than selling insurance.

I hope it does not all blow up in their face, as I still have that one whole life policy with them, and I would hate to see them go bankrupt, leaving me with some worthless pieces of paper.

And that is the rub with insurance.  A policy is only as good as the underlying financials of the company.  And as we have seen today, companies might seem sound one day, and be a hollow core the next.

UPDATE:  December 13, 2010:

I called another State Farm Agent to see about insurance for a GEM NEV.  I tried a different Agent this time (there are like, four within spitting distance of here, talk about saturation!).  I explained the deal to her on the phone, and told her that the State Farm website, although giving me a quote for the vehicle ($107 a year) said to "contact a local agent" when I tried to add a second driver to the policy.

GEICO's website doesn't seem to have this problem.

Anyway, she kept going on about "Golf Cart Insurance" and that it would be only $12 to "insure your golf cart".

After several e-mails and two phone calls, I finally explained to her what an NEV was, and that it needed regular car insurance.  She plugged in the numbers and, well, it was $107 a year.

State Farm has started a series of radio ads where they tout their Agency model as a PLUS, not a minus, and takes a dig at GEICO for being only available online or though a 1-800 number.  But GEICO provides BETTER SERVICE this way, and I have never had to wait more than one ring when I call, and EVERY TIME I CALL the person answering the phone knows what they are talking about.

If all you have to sell is shit, I guess you tout shit as some sort of rare exotic treat.  And State Farm's Agency model is shit.  So instead of fixing it, they tout it as an advantage.  And State Farm just can't seem to figure out how to run a website, it seems.

By the way, I decided to invest in Berkshire Hathaway B-stock (a derivative of the traditional Berkshire-Hathaway stock, for us little people).  From what I can see of GEICO, that Warren Buffet knows how to run a company - he runs a tight ship!  Hopefully his successors will do likewise.

UPDATE 2022:  My State Farm Agent in Ithaca suddenly and mysteriously "retired" (just as my agent in Alexandria did) even though he is easily a decade younger than I am.  I suspect he was tired of being pushed into the investment field and also having his insurance territory sliced and diced with a plethora of new agents.  If you are thinking of becoming a State Farm agent, do some research online - I am reading some horror stories about that (as well as NML agents).  It's sell, sell, sell these day - investments and life insurance.  The old days when you could just sell car and homeowner's policies and run a nice little office and make a decent income, are long gone, it seems.

Oh, well.  I hope my old agent is doing well, but State Farm scrubbed him from the site immediately and I cannot find any contact information for him online.  It's like he's a ghost!