GEICO Success Highlights Advertising Dollars vs. Agent Commissions Debate

Direct writer GEICO’s success in auto insurance sales is due to spending dollars on effective advertising rather than on agents, according to recent research from analysts at Nomura Equity Research, which notes that GEICO has overtaken Allstate to become the nation’s second-biggest auto insurer while agency-writer Progressive is losing ground in the personal auto insurance race.

“GEICO may not be catchable in this race,” the analysts assert.

GEICO spends on advertisements that “deliver,” while “Progressive pays agents that don’t,” write research analysts Clifford Gallant and Matthew Rohrmann, comparing their underwriting expenses head-to-head. In the research note, the two equity analysts also assert that GEICO sells more coverage simply because it charges less.

“For a commoditized product, low cost and effective marketing are keys to share gain,” they say.

Using U.S. statutory direct written premium data from SNL Financial for the personal auto line for the first half of 2013, Nomura estimates that while State Farm still leads the pack with an 18.0 percent market share, market share for Berkshire Hathaway’s GEICO—at 9.9 percent—eclipses both third-ranked Allstate (9.7 percent) and fourth-ranked Progressive (8.2 percent).

Drilling down to the state level, the analysts report that GEICO grew in all 50 states in the first half, with a median growth rate of 12.6 percent across the top-10 states, while Progressive’s median growth for the same 10 states was only 4.1 percent. You can read the full article, compliments of Insurance Journal by clicking here.

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