Giant direct auto insurance seller Geico has been airing ads on Boston Red Sox radio broadcasts even though it does not do business in Massachusetts. The radio games are broadcast across New England and the Northeast so Geico is gaining exposure in the neighboring states. But the Boston radio market ads could also serve as a warning to competing insurers that the gecko is set to play ball in the home state of the Red Sox now that the state has decided to give insurers more control over their pricing.
The Boston Globe reported that Warren E. Buffett, whose Berkshire Hathaway is the parent to Geico, wants the insurer to enter the nearly $4 billion private passenger auto insurance market in Massachusetts, although he did not confirm it is doing so.
“It’s crazy for us not to be in Massachusetts,” Buffett told the Boston Globe.
Asked to elaborate, a Geico spokesperson told Insurance Journal that Buffett was not available for a comment at this time.
Geico, with its well-advertised gecko mascot, is the fourth largest and fastest-growing auto insurer in the country, with more than 7.4 million auto policyholders. Geico writes in 49 states and the District of Columbia. It has more than 21,500 sales associates manning 12 major offices around the country.
GEICO policies are marketed mainly by direct response via the Internet, over the telephone or through the mail. Currently, the vast majority (86 percent) of drivers in Massachusetts purchase their auto insurance through independent agents, not online and not direct from an insurer.
If the gecko does enter Massachusetts, it probably won’t just crawl; it will sprint. In 2004, after New Jersey changed its auto insurance laws to attract insurers, Geico quickly stormed into the state ahead of its competitors and captured the direct response market. It now is the third largest auto insurer in New Jersey with more than a half million customers.
Earlier this summer, Massachusetts Commissioner Nonnie Burnes decided that the state could no longer justify setting auto insurance prices for all insurers and began the process of opening up the market to pricing competition. Lots of details remain to be decided, including whether insurers will be permitted to use controversial factors such as credit score and occupation in their pricing and how much if any subsidy for urban and young drivers will be maintained. The new, more competitive system is supposed to be in place for April 1, 2008.
If Geico does march into Massachusetts, it will face competition from about 19 other insurers including the largest auto writer, Commerce Insurance, which recently pulled a major public policy u-turn. Commerce had opposed changes to the system but now says it is fully onboard the competitive rating bandwagon. It even says it now supports the new assigned risk plan which last year it went to court to block.
Commerce, which has flourished under the current fix-and-establish rates and unique residual market rules to become the state’s number one auto writer with more than 30 percent of the market, says its years of opposing change are behind it.
“That’s all history,” Gerald Fels, chief executive officer and president of the Webster, Mass.-based company, said during a recent teleconference with Credit Suisse. “We’re going to go forward.”
According to Fels, Commerce “fully supports” the decision to introduce “managed” competition.
“We totally support the Patrick Administration. We feel we got a fair decision here and we’re ready to do business.”
Fels seemed unfazed by the prospect of direct sellers like Geico, 21st Century or Progressive making inroads. He said his company competes with direct writers elsewhere and will compete in Massachusetts with its independent agents by supplying them with the best products to sell. Commerce does not offer an online quoting service for buyers.
He cited a big market advantage for Commerce: its arrangement with the AAA Southern New England under which it insures more than 500,000 of the more than 1.2 million AAA member households in the state. The program is marketed through independent agents who represent Commerce. The agreement was extended for a minimum of 20 years last December.
“It’s a tremendous opportunity for us,” Fels noted of the move to more competition.
Fels said he thought the Massachusetts approach to deregulation would be more controlled than what he termed the “free-for-all” in New Jersey in 2004. He also said he thought people have learned from the Bay State’s own failed open rating attempt in 1977 when he said the industry “did consumers a bad turn” by hiking rates an average 14 percent but some by as much as 30 to 40 percent.
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