State Farm is returning $5 billion to eligible mutual auto policyholders in what the carrier calls the largest dividend in its history.
In a newsroom announcement, State Farm said it generated a $4.6 billion underwriting gain in auto in 2025 after prior-year losses, citing improved results and lower overall loss pressures.
For collision repairers, the headline raises a more practical question: If insurers are reporting improved results and “lower repair costs,” what is actually happening on the ground?
A turning point in the insurance cycle?
Shannon Martin, a licensed insurance agent and Bankrate analyst, says the dividend signals stabilization, but not a full market shift. She also emphasized that the recent profitability does not necessarily mean rates overshot.
“This is more about timing,” she said. “For the past few years, insurers were pricing for a volatile environment. Costs were climbing fast and carriers had to catch up quickly just to get back to break even. This dividend payout is a signal that things stabilized a little faster than expected.”
She also noted that today’s cost structure is fundamentally different from pre-2020 levels.
“Because of inflation, tariffs, and higher repair and labor costs, the cost of insurance today is just structurally higher than it was pre-2020. So even as the market stabilizes, drivers shouldn’t expect a return to pre-pandemic pricing.”
Frequency and the labor rate
Martin said the underwriting turnaround is the result of several forces converging at once.
“First, frequency is down, so fewer claims overall. Severity is still high, but not rising as fast. And the rate increases from the past couple of years are now fully earned through,” she said. “It can take about a full year for a rate increase to be fully reflected in the premiums insurers collect, so we’re now seeing the full impact of those earlier pricing decisions. Put together, that’s what’s driving the turnaround.”
According to Martin and State Farm, claim frequency has declined, contributing to improved underwriting results. But operators say that when vehicles do enter production, severity and procedural requirements remain elevated.
Ron Reichen, owner of Precision Body and Paint in Oregon, referenced a recent 7.98% increase in paint material costs and said his shop continues to perform OEM-required procedures, including diagnostics and calibrations, that add to overall repair complexity.
“They're [State Farm] just simply not paying for operations that they used to pay for with no explanation,” Ron said.
Ron said his labor rate is significantly higher than what State Farm recognizes in his market and that his shop regularly collects short payments from customers when the insurer does not reimburse the full amount. He also said shops are “carrying that receivable load” and facing “more and more administrative burden” tied to claim handling and supplement negotiations.
CRASH Network’s quarterly Collision Industry Business Perspectives from the fall found that 1 in 4 of 300 shop respondents reported at least one insurer was paying a lower labor rate than it was back in January 2025. The finding reflect rate reductions that occurred sometimes in 2025 compared to the beginning of the year.
“It has to be pretty frustrating from a collision repairer's perspective to see an insurer that lowered the labor rate it was paying your shop in 2025 end the year with record-high profits,” said John Yoswick, editor of CRASH Network.“But State Farm is not the only insurer that raised premiums in recent years more than turned out to be necessary given the downturn in claims that occurred in 2025. Given the insurance industry's return to profitability, a need for more reductions in labor rates would seem pretty hard to justify this year.”
