The Race Is On

Car-insurance discounters gain ground as changing consumer habits transform the industry

By Kathleen Kingsbury Monday, June 28, 2010
    • Illustration by Mark Matcho for TIME

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    Following close behind, Progressive still has agents but deploys them behind a sophisticated Web presence. Customers can compare price quotes with competitors' rates and use a tool to build customized coverage packages based on how much they wish to spend. Progressive's profit topped $1 billion last year. "Geico's marketing is clever, but it's really Progressive that has taught customers smarter ways to buy insurance directly," says Deutsche Bank analyst Joshua Shanker. "Everyone else is playing catch-up."

    Another innovation: paying only for the auto insurance you use. Here, again, Progressive leads. For the past two years, its MyRate program has granted car owners in many states discounts of up to 60% based on how many miles they drive, how often they brake or what time of day they drive. Progressive collects its data in black-box sensors installed in customers' cars, and patents on the technology have kept its competitors out of the way for the most part. Critics have, however, raised privacy concerns about the technology. "We want to put customers at a greater degree of comfort that all we're trying to do is get a better idea of you the driver as an insurable risk, and we're not interested in any of the Big Brother elements," Renwick says. "We'll have an improved product to deal with these issues in the second half of the year."

    The hometown insurance agent is not going away anytime soon. Progressive and Geico have moved quickly up the auto-insurance ladder, but neither is close to cracking the top two. State Farm and Allstate, both based in Illinois, together hold about one-third of the market and serviced about 90 million policies last year. What the pair lack in novelty, they make up for in scale and loyalty. "Sometimes naming your own price doesn't translate into the right value or coverage and you need an agent to tell you what you need," says Allen of State Farm. "We've been able to leverage Flo by not being Flo."

    In other words, State Farm and Allstate are where the grownups shop. Lower-price rivals might be willing to insure younger, high-risk drivers, whom they can charge more up front. But the industry giants sell primarily to the best drivers, those who are much less likely to file accident claims or get speeding tickets. The best lure for those customers is convenience. For instance, when homeowners need coverage, they receive discounts on vehicle- and life-insurance policies. Once signed up, these customers rarely leave. So despite sometimes noticeably higher prices, Allstate retained nearly 90% of its policyholders in 2009. "If you're a 40-year-old male with two small children, you buy a lot more insurance than a 20-something," Grasher says. "Because of their singular focus on auto, Progressive and Geico take a backseat." Perhaps not for long. Progressive and Geico now offer homeowners' policies through third-party carriers.

    The best way to keep existing policyholders is to process their claims efficiently. Last year State Farm handled some 13 million fire and auto claims, worth more than $32 billion in payouts. To help, it has moved into another communication realm: mobile. By using the firm's iPhone or Android app after an accident, for example, a customer can immediately locate the closest claims center, start the filing process and even submit photos of the damage. Soon mobile applications will also allow filers to follow their claim's progress step by step. As Patty Gaumond, head of State Farm's enterprise Internet solutions group, puts it, "It's just like having an agent in your pocket."

    Still, until Americans start buying cars again, competition for growth will remain stiff. Progressive has explored expanding overseas, while Geico made an ill-fated move into credit-card issuing. Allstate recently began an ambitious campaign to dethrone State Farm and double its own revenue from premiums over the next decade, a goal it hopes to achieve by keeping prices low through improved discounts.

    Expect Flo to stick around too. This spring more than 2,500 fans vied for the chance to become her assistant in an upcoming national ad campaign. As it turns out, the winner, Jacob Doherty, a 21-year-old loan collector from Kentucky, is not a Progressive policyholder. It appears that Flo still has some work to do.

    Due to a reporting error, this story orginially misstated that Progressive's MyRate tracked how closely drivers followed speed limits. MyRate does not have GPS, therefore speed limits can't be tracked. It also said MyRate is available in most states. The service is currently available in 19 states.

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