GEICO Auto renewal Premium Jump

[crs223]

I got a quote from Geico and Progressive today (online) for bundled auto and home.  Both subsequently refused to quote the home policy (“call us!”).

 

Both came in ~10% higher than state farm — which is presently bundled with home.  Im in California.  I pay $520/6month for a 2021 subaru, no tickets or accidents.

Edited January 16, 2023 by crs223

[Spekulatius]

26 minutes ago, crs223 said:

I got a quote from Geico and Progressive today (online) for bundled auto and home.  Both subsequently refused to quote the home policy (“call us!”).

 

Both came in ~10% higher than state farm — which is presently bundled with home.  Im in California.  I pay $520/6month for a 2021 subaru, no tickets or accidents.

Geico really does not have a good bundle of auto with homeowners. They used a different company (I think it was Travelers) for the homeowner part and when I was looking at them, it was two separate bills. The lack of homeowner bundle is a weakness of Geico. I had Geico at the beginning, but once I bought a home in 2002, they were not competitive with a bundle for me any more.

[longterminvestor]

Mr. Buffett is not a fan of homeowners as a line of business.  He has spoken about the lack of premium for total loss scenario and the additions of supplemental coverages aggregating.  I tend to agree with Mr. Buffett, happy GEICO is staying out of homeowners business.  Still can not get my head around how GREAT Progressive's underwriting results are looking compared to others - they are crushing the competition.  

 

Regarding California - its a troubled state for lots of reasons in the insurance, the latest saga is the HO line due to fires - I have seen some accounts in Cali doing crazy things due to fire rates.  Quake is separate issue all together.  TBD on status of Cali post these latest storms.  We got a bunch of binding restrictions last week for the entire state of California. 

 

Fun times to be an insurance broker.  Did you try Mercury?  They are a California based auto/home carrier.  Run by a guy who is literally 100 years old and still goes to work every day.     

[longterminvestor]

this thread has me thinking a lot about the auto insurance market.  I could sit down and crack open the 10-K's of the publicly traded auto insurance companies....or maybe someone already did that.  Does anyone know of a good - recently up to date within the past 1-2 years - of research on auto insurance companies as a business?  Like a research report (dirty word and I cringe saying it out loud).  Just Curious - someone may have a link or something?

[MCR]

1 hour ago, longterminvestor said:

this thread has me thinking a lot about the auto insurance market.  I could sit down and crack open the 10-K's of the publicly traded auto insurance companies....or maybe someone already did that.  Does anyone know of a good - recently up to date within the past 1-2 years - of research on auto insurance companies as a business?  Like a research report (dirty word and I cringe saying it out loud).  Just Curious - someone may have a link or something?

 

Not exactly what you're looking for but probably a decent start: https://rationalwalk.com/auto-insurance-competitive-dynamics/

[longterminvestor]

On 1/17/2023 at 11:09 PM, MCR said:

 

Not exactly what you're looking for but probably a decent start: https://rationalwalk.com/auto-insurance-competitive-dynamics/

I appreciate the lead - thanks.  its getting closer, just need the other publicly traded auto carriers here with data as presented.  

 

[DooDiligence]

My next 6 month policy with GEICO went up about $150., which wouldn't be so bad but Progressive offered a policy that was $150 cheaper than GEICO before the increase, for virtually the same coverage limits. GEICO deductible was $500 and Progressive is $750. Increasing the GEICO deductible to $1000 provided a laughably small decrease.

 

I'm now a Progressive customer.

 

I had used the GEICO app and enrolled in the DriveEasy program with a score of 98 out of 100 (no hard braking, good cornering and minimal distracted driving).

 

I'm now signed up with Progressive's Snapshot app based driver monitoring program. I'll have to wait a week or so to see how the app presents data.

 

This does not bode well for GEICO in the near term. Could be bad for Progressive if they're underpricing.

[gfp]

Thanks for the data points.  There is no doubt that Q4 and Q1 are going to be ugly quarters at GEICO.  But BRK may do just fine despite that.  

 

Personally, I am eagerly awaiting the disclosure of how many Taiwan Semiconductor shares Berkshire owned at year end.  (off topic)

[james22]

Is Progressive the preferred alternative?

 

My revised payment is +76%. LOL

[DooDiligence]

My last 6 month policy with GEICO was $569 and I can't remember how much the increase for renewal was but it was enough to prompt me to investigate alternatives.

 

My new Progressive policy is $446 for exactly the same coverage.

 

All GEICO had to do was bump it a few bucks and I never would've looked elsewhere. I'm a safe driver and scored a 98 using GEICO's DriveEasy monitoring program.

 

This doesn't bode well.

[RadMan24]

No change in my upcoming Geico quote. This bodes well. 

[crs223]

4 hours ago, james22 said:

Is Progressive the preferred alternative?

 

My revised payment is +76%. LOL

 

For me, progressive and geico were the same (within 2%) and State Farm was 10% lower.  Good luck!  You can always switch to an e-bike!

[DooDiligence]

So I got in a discussion on Reddit regarding these premium increases and when I laid out my recent experience, I got this response:

 

"Your singular $500 insurance policy isn’t really a fair piece of evidence to make judgements of a company the size of GEICO. Insurance policy premiums are increasing across the board just like all other consumer goods currently are. These increases have nothing to do with the individual policy characteristics, they are driven by changes in macroeconomic forces. You did the right thing by shopping your policy when these changes happened, but GEICO also did the right thing by broadly increasing policy premiums. GEICO knows they will probably lose 15%-20% of their business due to these increases, but as long as they lose more bad accounts than good accounts this is a net positive. You were an unfortunate casualty of the cyclical insurance market, but ultimately your increasing premium is actually an indicator of a good insurance company rather than a bad one. Don’t take it personal."

 

---

 

I questioned the response and kind of insulted the guy, who is apparently an underwriter, and he/she was kind enough to not take offense and offer further explanation with the following:

 

"I’m literally an underwriter. I am the person who tries to save high quality policies like your own but ends up losing them from my book because my company is taking rate based on factors outside of the characteristics of the individual policies. You missed my point."

 

---

 

I did indeed miss the point and apologized with a thank you for the lesson.

 

However, I still don't understand the wisdom of cutting off an entire nose to get rid of a few pimples. Why not just reprice the bad risks to a level that compensates for the risk and if they leave, fine. You don't want them on the books anyway. But running off low risk business that will be difficult to get back just seems foolish.

 

Can anyone explain these mysterious "factors outside of the characteristics of the individual policies"? There was a recent similar discussion somewhere here but I can't find it.

[longterminvestor]

I can take a stab at this.  Early in my career, a Senior Underwriter gave me a similar lesson.  His point was (paraphrasing) Don't look at policy count/premium retention needing to stay at 100% - if it is, it's actually a bad outcome.  The underwriter explained 100% retention as "we left money on the table".  

 

Deepening the lesson a tad to Progressive vs GEICO, and GEICO's lacking investment in Analytics, Progressive has been gaining market share using a tool that allows them to price risk at renewal based on usage.  When insured comes with no history, similar formula to GEICO (tons of data goes into this first stage) and then what analytics does at renewal (more specifically having real time feed back on breaking, speeds, miles driven, ect) it allows Progressive to price out the customers they do not want faster and price in the customers they do want during the upcoming renewals.  GEICO did not invest in that technology, Progressive invested heavily.  And frankly, it shows in the numbers.  

 

And what I see happening, even worse for Berkshire/GEICO, is Progressive is keeping the "good risks" and GEICO is picking up those "bad risk" - I see GEICO as pricing for the "scraps".  

 

The above is underwriting driver behavior -  there are many more factors that load in (referenced above as macro) - geography (wind load in FL vs quake load in CA vs Flood load in MS vs no load for CAT in Iowa), similar is big city/small town so that's zip code, theft/crime rates, regulatory environments with insurance commissioners (and lobbyist with who insurance companies work with) to set the actual rates, new law perhaps - we call this regulatory arbitrage - changes like liability for DUI in Arkansas is different in FL - the bar who served can be held liable in Arkansas.....and the law could change in future which could change the rating loads with new liability in court room (Nuclear Verdicts), and more specifically to the risk (micro) youthful drivers in household, family members in household of driving age, getting married/divorced.  All of this factors into pricing, as the life of the insured changes, as the economics of auto/driving habits change, pricing will change.  

 

It can get very technical, to those who continue to wonder about price - the answer is simple to me.  If you want "best price" today, with ALL the data available on you/family readily accessible with a credit pull and a LexusNexus ping, then you gotta shop every 6 months - period.  Full Stop.  And shopping around takes work - unload that to a broker or do-it-yourself direct with no representation.  Your option.  

[Cigarbutt]

^From a collision repair source which may be relevant to the recent Progressive edge:

Market concentration in auto insurance increases; GEICO, Progressive projected to pass State Farm in 2023 | Repairer Driven News

So, unusually, Progressive has been able to maintain a reasonable compromise between market share growth and profitability. Geico has not but likely will change course for the better?

Right now, until they define and see more clearly their competitive position, Geico seems to focus more on the making profit aspect than on the market share aspect, using "macro" criteria?

Is it not, in a (exaggerated) way, similar to holding cash when one is relatively clueless about what's going on?

[DooDiligence]

It hadn't occurred to me that underspending on analytics includes more than just tele-metrics.

 

Maybe the old man should have made Verisk a wholly owned sub rather than selling the position?

[crs223]

12 hours ago, longterminvestor said:

And what I see happening, even worse for Berkshire/GEICO, is Progressive is keeping the "good risks" and GEICO is picking up those "bad risk" - I see GEICO as pricing for the "scraps". 

 

What percentage of GEICO policyholders would you say were “bad risk” ~years ago?  What about today?

[pricingpower]

Progressive’s year over year premiums written were +31% for February with personal policies in force +8%, almost concerningly high growth.

[longterminvestor]

11 hours ago, crs223 said:

 

What percentage of GEICO policyholders would you say were “bad risk” ~years ago?  What about today?

Bad Risk is relative.  Its not a bad risk if its priced correctly.  The consumer is complaining, "my premium went up" but its probably insurance company matching the risk with the rate.  Many moons ago it was a crap shoot on rates but the risk was super small - no possibility for $500,000 claim either from a Jury/settlement or just the limits on the policy were just smaller.  Now, the max payout is larger. 

 

I mean, think about it like this - the auto insurance value is pretty great/amazing.  Look at what you are getting.  Lets say average rate in $100/month for Comp/Collision on a Audi Q5 (middle of the road decent/nice car) and $250K/$500K limit (forgetting PIP/UM).  That's $1200/yr for a max payout out of $550,000 PER ACCIDENT.  Meaning one could have multiple accidents in 1 year - each time $550,000 is at risk.  Every time the vehicle is on the road there is a risk of $550,000.  The risk is reduced when the car is parked to $50,000 (comprehensive/collison risk only).  A few years ago Progressive saw the max payouts rising and needed a way to attract "their kind of driver" and they built it from scratch.  GEICO just spent more money on caveman ads.  

 

All is not lost for GEICO.  Brand and loyalty mean a lot - and Progressive may make a mistake.  

 

Its a bad risk when you mispriced the rate charged on the exposure.  Mr. Buffett and Mr. Jain have repeatedly told us, solid underwriting is matching rate with risk.  

 

 

[crs223]

On 3/14/2023 at 9:38 PM, longterminvestor said:

Progressive is keeping the "good risks" and GEICO is picking up those "bad risk"

 

You said that GEICO is getting more “bad risk” (your term, not mine).

 

I would like to know how much “bad risk” you think GEICO has now vs 5 or so years ago.

 

a) 10% of GEICO policies are “bad risk”  in 2023 compared to 5% five years ago

 

b) 60% of now vs. 0% five years ago

 

c) etc

 

 

 

 

[Cigarbutt]

^My guess is that the answer was more qualitative than quantitative but numbers (loss ratios) help to guess how Progressive has been better at segmentation and retention leaving Geico with spontaneous relative adverse selection.

Recently:

[gfp]

Here is an article comparing advertising spending for GEICO and their competitors.  As mentioned in BRK's annual report, GEICO was putting up horrible numbers even after a sharp drop in ad spending.

 

https://www.insurancebusinessmag.com/us/news/breaking-news/geico-reports-largest-cutback-in-ad-spend-for-2022-439853.aspx

[yesman182]

Buffet has said in the past that being an investor makes him a better business man and being a business manager helped him be a better investor. I assume that was a large reason for why Todd became the CEO -- a teaching/learning experience for Todd. Hasn't this exercise of teaching Todd that being a CEO is hard run its course? 

 

I don't think we have ever heard Buffett grade Todds performance, if Buffett thought he was doing a great job I am sure he would have found a chance to praise him, like he does with Ajit and Greg. 

[longterminvestor]

On 3/16/2023 at 9:36 AM, crs223 said:

 

You said that GEICO is getting more “bad risk” (your term, not mine).

 

I would like to know how much “bad risk” you think GEICO has now vs 5 or so years ago.

 

a) 10% of GEICO policies are “bad risk”  in 2023 compared to 5% five years ago

 

b) 60% of now vs. 0% five years ago

 

c) etc

 

 

 

 

Match rate to risk.  I believe GEICO is getting the more risky drivers and has to price for that risk.  If Progressive is attracting more good insureds defined as people who are generally safer and ultimately file less claims, their individual premium charged will actually go down over time (Progressive calls this their "Discount Loyalty Program" or something like that) but more policies in force means Progressive is growing top line.  Conversely, GEICO is taking on clients who potentially could file more claims (the ones Progressive doesn't want), their rate charged needs to be higher.  GEICO is not "raising rate/premium for raising sake".  The premium is up for the individual policy because they are taking on an insured that is less predictable and the margin of safety needs to be included in the rate making formula - this is pure Buffett.  However top line is shrinking because they are losing long time customers.  

 

GEICO's entire premise is price, auto insurance is a commodity - policies are basically the same at personal auto level and loyalty comes with with getting best price - compete on price.  And very clearly, they are losing on price, and they are losing the better risks on price.  This is my point.  

 

GEICO barely puts out anything public as granular as you are asking for.  Here are the Numbers the way I see them:

GEICO premium 2020- $34,928B, 2021 - $38,395B, and 2022 - $39,107B - thats a 12% growth rate from 2020-2022

Progressive personal lines premium 2020- $32,620B, 2021 - $35,373B, and 2022 - $37,880B - thats a 16% growth rate from 2020-2022

 

Comping off 2020 with COVID skews numbers but its what I had infront of me - if you have more questions I can dig some more.  This is just the way I see it, I hope I am wrong for Berkshire, I hope they are figuring this out.  Just concerning how poorly Progressive is LAPPING GEICO.  

 

And Progressives number for Q1 YOY are at a 22% growth rate.  GEICO has not published Q1.  BUT premium written for GIECO in Q4 2022 YOY was actually down, less than last year, premium is shrinking, another way to call that is negative growth.

 

 

see slide deck from Progressive regarding attracting/retaining better drivers, this is public information:

 

see slide deck regarding Progressive premium growth:

 

been busy with my day job, sorry for the late reply.  Insurance in Florida is going nutty.  

Edited April 18, 2023 by longterminvestor

[Spekulatius]

Seems to me that Todd Comps isn't the right CEO for Geico and they need to replace him with somebody else, who can figure this out. Todd started his CEO role in early 2020 (if I see this correctly) and it seems like things started to go downhill from there.