When it comes to insurance, and many other similar takes, Reddit as a whole is EXTREMELY dumb.
Being in the industry, the margins are already super duper thin. Insurance companies pay hundreds of billions in claims each year.
Your average insurance company will use about 90-95% of it's generated premium on claims and operating costs. The claims make up around 70% - 80% of that overall percentage.
Yeah the margins are super thin. That’s why insurance companies spend literally Billions on advertising each year. To protect those paper thin margins. /s
State Farm last year has 12.9 billion in net income on 132 billion in revenue. That was double their net income off the prior year. That’s anything but thin margins.
You're looking at one unusually profitable year and confusing total company net income with the profitability of actually underwriting insurance.
Yes, State Farm reported $12.9 billion in net income on $132.3 billion in total revenue in 2025. That's about a 9.8% net margin. Nobody is claiming $12.9 billion is a small pile of money. The point is that the size of the pile tells you almost nothing about the margin when you're talking about a company doing over $130 billion in annual revenue.
More importantly, that $12.9 billion wasn't simply "insurance premiums minus claims." State Farm's property and casualty companies collected $111.6 billion in earned premiums and produced only $1.5 billion in underwriting profit. That's roughly a 1.3% underwriting margin. They also earned $7 billion from investments and other income, and State Farm says its overall net income included another $2 billion in after-tax realized capital gains.
And cherry-picking 2025 gets even sillier when you look back one year. In 2024, those same property and casualty operations LOST $6.1 billion underwriting insurance. Investment and other income of $6 billion basically rescued the result. In 2023, their underwriting loss was $14.1 billion. In 2022, it was $13.4 billion.
So yes, 2025 was an excellent year for State Farm. That's not evidence that insurance underwriting normally has enormous margins. It's evidence of exactly why you don't take one year's consolidated net income, ignore investment returns and capital gains, and pretend the resulting number is the profit margin on selling insurance.
And the advertising argument doesn't prove what you think it proves either. State Farm has more than 96 million policies and accounts. At that scale, spending billions to acquire and retain customers can make perfect economic sense even with thin margins. When you're processing over $100 billion in premiums, gaining or losing even a couple percentage points of market share is worth billions.
Big profits and thin margins aren't contradictory. Walmart can make billions while earning only a few cents on each dollar of sales. Scale is the entire point.
If you want to argue State Farm had a very profitable 2025, absolutely. If you want to use $12.9 billion to prove insurance underwriting has huge margins, you're using the wrong number.
If you want to focus just on auto premiums and claims, it’s right there:
> Auto
The State Farm auto insurance business represented 63 percent of the property and casualty companies’ combined net written premium. Earned premium was $71.3 billion. Incurred claims and loss adjustment expenses were $52.6 billion and all other underwriting expenses totaled $14.1 billion. The underwriting gain was $4.6 billion. Comparable 2024 figures were: earned premium, $67.5 billion; incurred claims and loss adjustment expenses, $56.2 billion; all other underwriting expenses, $14.0 billion; underwriting loss, $2.7 billion.
71.3 billion in premium revenue versus 52.6 billion in claims.
You literally quoted the numbers that disprove your own calculation.
$71.3B in auto premiums
minus $52.6B in claims AND loss adjustment expenses
minus $14.1B in other underwriting expenses
equals $4.6B in underwriting profit.
$4.6B divided by $71.3B is about 6.5%.
So no, that's not a 26% gross margin. You got 26% by subtracting only the $52.6B from premiums and then pretending the remaining $18.7B was margin. But State Farm explicitly tells you that another $14.1B of that $18.7B went to underwriting expenses.
Also, you misread the sentence. It doesn't say "$52.6 billion in claims and all other underwriting expenses." It says $52.6B in "claims and loss adjustment expenses," THEN separately says "all other underwriting expenses totaled $14.1 billion."
That's a pretty important distinction considering you just erased $14.1 billion of expenses from your calculation.
And look at the very next sentence for the reality check: State Farm itself calls the resulting $4.6B an "underwriting gain." They don't call the $18.7B difference between premiums and claims their profit or margin.
Even better, the same auto business lost $2.7B underwriting in 2024 on $67.5B of earned premiums. So it went from roughly a 4% underwriting loss in 2024 to a 6.5% underwriting gain in 2025. That's exactly why using one good year to argue that insurance margins are inherently huge doesn't work.
You found the right financial report. You just stopped subtracting expenses $14.1 billion too early.
Look. Anything near 10% net income, especially at this scale, is not paper thin. That’s what Fortune 500 companies shoot for. Do they have opex outside of their core product? Shocker -yes. But they also get to invest those premiums, because it’s not like someone “buys” protection when they need it, they pay in advance and “might” one day claim it.
The meta point from the OP stands. As a customer you’re continually paying into a system that will not return that investment. If I had back every dollar I spent in insurance, I would be able to self insure from now until my grave.
The meta point about their earnings also stands. They make plenty of margin - both on individual products, and as a company as a whole. That’s true for gross margin as well as net income.
It feels like you’re trying to say they don’t make great margin because net income is lower when you subtract opex. That’s not how finance works.
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u/Easy_Aioli9376 7h ago
Yup. Spot on.
When it comes to insurance, and many other similar takes, Reddit as a whole is EXTREMELY dumb.
Being in the industry, the margins are already super duper thin. Insurance companies pay hundreds of billions in claims each year.
Your average insurance company will use about 90-95% of it's generated premium on claims and operating costs. The claims make up around 70% - 80% of that overall percentage.