Let me see if I got this straight.
State Farm hits you with a 50%-plus increase over three years on your car insurance. You bleed. You complain. You think about selling the car and riding a bike. And then, when the company's profits blow past expectations, they hand you back a hundred bucks and expect a round of applause.
There's a word for this: circus.
What actually happened
State Farm announced Thursday the largest dividend in its 103-year history: $5 billion returned to its auto insurance policyholders. On average, each customer will get about $100, varying by state and by the premium they paid.
The company also said it cut premiums by roughly 10% across 40 states, totaling $4.6 billion in lower costs for customers.
The justification? "The company's financial strength and better-than-expected underwriting performance." In plain English: they made a killing and now need to toss back some loose change before regulators come knocking.
The context nobody wants to talk about
Here's the number that matters: according to the U.S. Bureau of Labor Statistics, auto insurance premiums rose more than 50% in three years through early 2025. That was the highest inflation in the sector in fifty years.
Fifty years, my friend. To put that in perspective: the last time car insurance spiked like this in the U.S., Nixon was still fresh news.
What caused it? Repair costs skyrocketed. Chip-laden parts, increasingly complex vehicles, scarce labor. But — and this "but" is important — by 2025, accident frequency had dropped and repair costs had started to come down.
In other words: the justification for the brutal increases was already evaporating, but insurers kept charging the inflated prices. The result? Record profits. Then comes the "generous" dividend.
It's like that Joker line: "If I tell you I'm going to give your money back, nobody panics. Because it's all part of the plan."
The market moved — but from pressure, not from the goodness of their hearts
It wasn't just State Farm. USAA returned $3.8 billion to its members in 2025. Progressive paid $1 billion in dividends in Florida alone — and make no mistake, it wasn't charity: Florida law requires insurers to return excessive profits.
Did you catch that? Progressive only gave it back because they were required to by law.
And Progressive, it should be noted, has been aggressively eating into State Farm's market share. Competition got so fierce that TransUnion published a report showing that shopping for insurance has become routine for American consumers. It's no longer something you do when you buy a new car. It's something you do regularly, like checking your credit card statement.
Patrick Foy, TransUnion's senior director for insurance, put it bluntly: "We can safely say that regularly shopping for insurance is the new normal."
Translation: customers got tired of being suckers.
The elephant in the room
Auto insurance represents 63% of the business in State Farm's property and casualty segment. It's the heart of the company. Losing customers in this segment is like losing blood.
And here comes the detail that the CNBC piece practically buries: loyalty in auto insurance generally drives loyalty in home insurance. And in home insurance? State Farm admitted to CNBC that claims costs are not dropping and that it's still trying to charge "adequate" rates.
In other words: they give you back $100 on the car to keep you locked in on the home insurance, where they keep bleeding you dry. That's strategy, not generosity.
The lesson that applies on both sides of the border
If you're looking at this from outside the U.S. and thinking "their problem," think again. The same model operates everywhere. Insurance companies are profit machines that run on information asymmetry. They know exactly how much the risk costs. You don't.
Warren Buffett built Berkshire Hathaway on top of this — Geico, which competes directly with State Farm, is one of the old man's crown jewels. He figured out decades ago that the insurance float is the best financial leverage in existence. Other people's money, working for you.
So when an insurer announces it's going to "return" $5 billion, the question you need to ask isn't "how nice of them, right?"
The question is: how much did they keep from what they shouldn't have been charging in the first place?
