GEICO Gets Progressive, Joins Auto Insurers Offering Telematics

Berkshire Hathaway’s GEICO auto insurer has joined the ranks of carriers using telematics to track and improve driver behavior—after resisting for years.

GEICO has been one of the few among the top 10 largest personal auto insurance carriers without a usage-based insurance program.

GEICO is now testing a smartphone app called DriveEasy that gives drivers feedback on their driving and assigns them a score.

Number one auto insurer State Farm recently upgraded its telematics to provide driver reports in real time.

GEICO has not been a fan of usage-based programs to curb distracted driving. The insurer has been running “Smart Dogs” ads that poke fun at the technology other insurers offer to curb distracted driving. The ads say those efforts won’t work and advise drivers that the answer is for them to simply put their smartphones on “do not disturb while driving” mode.

But GEICO’s real impetus for joining the telematics team may be that it is being outsmarted by at least one of those other dogs, Progressive. GEICO is jealous that rival Progressive, a pioneer in telematics, enjoys a double-digit advantage in the very important loss ratio side of the business.

Berkshire Hathaway Chair Warren Buffett and Vice Chair Ajit Jain discussed the competition between GEICO and Progressive during their May annual meeting and admitted they watch Progressive closely. The two compared GEICO’s auto results with Progressive’s.

“We grew in the first quarter about 340,000 policies net, which will look good compared to anybody but Progressive,” Buffett said, noting that GEICO’s growth exceeded last year’s first quarter. And although the growth fell short of what it was two years ago, GEICO’s first-quarter profit was around 9 points.

But then Jain, splitting the underwriting profit figures into the expense ratio and loss ratio components, revealed that Progressive has a significant advantage on the loss ratio side—some 12-points over GEICO. On the other hand, GEICO beats Progressive on expenses with a 7-point expense ratio advantage, Jain said. “So, net-net, Progressive is ahead by about 5 points,” he said, reporting that “GEICO is very aware of this” loss ratio disadvantage and “very focused on trying to bridge that gap.”

Jain said he was hopeful GEICO would find a way to catch up on the loss ratio side while also maintaining the expense ratio advantage.

“I have always thought for a very long time [that] Progressive has been very well run. They have an appetite for growth. Sometimes they copy us. Sometimes we copy them. And I think that will be true five years from now, 10 years for now,” Buffett said.

Buffett said he was confident GEICO would continue to gain market share. “The question is whether we get some of that five points back,” Buffett said.

“We’re working very hard at that but I’m sure they’re [also] working to improve their system,” he added.

One difference is GEICO now has a new CEO. Tony Nicely quietly retired last June, although the company made little mention of it until Buffett did in his annual letter in February of this year.

Buffett has been effusive in his praise of Nicely, calling him a “model” manager while also noting his impressive record of growth while heading GEICO. “By my estimate, Tony’s management of GEICO has increased Berkshire’s intrinsic value by more than $50 billion,” Buffett wrote.

Bill Roberts is now CEO. Roberts was named president and chief operating officer in 2013 and he began then taking over more of the day-to-day responsibilities from Nicely. Roberts has been with GEICO since 1984. He served as vice president of marketing from 1985 to 1991. He was elected group vice president in 1994 and senior vice president in 1997. Before being named president in 2013, he served as executive vice president with responsibility for marketing and advertising, information systems, telecommunications and the Internet business unit.

It’s on the new CEO’s watch that GEICO is quietly rolling out its telematics program, a smartphone app called DriveEasy that tracks distracted driving behaviors, handheld phones calls and active phone use, and assigns a driving score to users. Once downloaded, the app makes participation so easy, well, a dog could do it.

“DriveEasy is made to help you be a safer driver. Your phone’s location and motion technology automatically reviews your driving habits and provides you with your individualized score. The better you drive, the better your score. Can you get a perfect score?” the promotion on the web site says.

DriveEasy is being made available to selected customers this summer for a 6-month trial period, according to GEICO’s website.

Some consumers have been reluctant to sign on to usage-based products out of privacy concerns; however consumers’ comfort level with sharing personal UBI driving data has been increasing, according to LexisNexis.

One of the reasons usage-based policies are gaining popularity is that telematics devices appear to change the behavior of drivers. More than half (56 percent) of the 1,135 drivers participating in an Insurance Research Council (IRC) public opinion survey said they have made changes in how they drive since installing a telematics device provided by their insurance company in their primary vehicle.

Consultants at Fitch have noted that telematics may be of major benefit for insurers, especially for insurers that are early adopters.

“Early movers in telematics could be at an advantage among insurers as it enables them to much more accurately price the risk of a driver than traditional pricing factors such as age, postcode and type of car,” the Fitch analysts said citing experience in the United Kingdom. “Evidence suggests that the lower premiums on these policies are more than offset by cost savings due to better risk selection and better driving behavior by policyholders with telematics.”

According to the National Association of Insurance Commissioners, the top 10 private passenger auto insurers are: State Farm, GEICO, Progressive, Allstate, USAA, Liberty Mutual, Farmers, Nationwide, Travelers and American Family.

Photo: Warren Buffett, Chairman, President & CEO of Berkshire Hathaway, 2013. (AP Photo/The Star, Matt Kryger)