The No. 2 U.S. private-passenger auto insurer is restructuring its programs in tandem with its rollout of telematics.
In a growing number of states that currently include Arkansas, Indiana, Kansas, Nebraska, New Jersey, and West Virginia, according to filings obtained by S&P Global Market Intelligence, GEICO Corp. proposed to write new business into multiple subsidiaries with one of the applicable entities limiting its risk appetite to customers who opt to enroll in telematics. In-force policies would remain in their existing underwriting company unless a policyholder specifically requests to have coverage underwritten in one of the new programs. GEICO generally intends to introduce the programs in these states in the second half of 2021 or the first quarter of 2022, depending on the market.
The evolution of GEICO's approach to new business in multiple states does not just signal an increased focus on telematics by a company that admitted to being late to embracing the use of real-world driving data in underwriting and pricing private auto policies.
It also could facilitate a smooth transition to a broader reliance on telematics should competitive and regulatory pressures dictate such a shift in the years to come.
GEICO's changing approach to the placement of new business provides evidence of the urgency it has recently placed on telematics. Ajit Jain, vice chairman of GEICO parent Berkshire Hathaway Inc., conceded during the company's most recent annual shareholders meeting that the insurer had been "late in terms of appreciating the value" of usage-based insurance technology. Jain added that GEICO had "woken up to the fact that telematics plays a big role in matching rate to risk" and intended to catch up to its peers in that regard.
The company's telematics program, like those for most of its competitors, relies on a third-party model that uses components that include distance traveled, time of day, mobile phone usage while driving, cornering, braking patterns and speed measured through the company's mobile app.
In West Virginia, GEICO Casualty Co. filed for an optional new business program that requires telematics while GEICO Secure Insurance Co. filed for a program that omits reference to such a requirement. The latter filing indicated that new business would no longer be placed into incumbent West Virginia private auto writers GEICO Choice Insurance Co. and GEICO Advantage Insurance Co. The exact identities of the incumbent and successor underwriting entities vary from state to state, but the concept is similar.
In Texas, however, GEICO is deviating from the multiple company approach as it opts to split the distinct programs into separate groups within a single underwriting entity, Geico Texas County Mutual Insurance Co. Formerly known as Southern County Mutual Insurance Co., GEICO obtained control of the Texas insurer in January.
In Michigan, GEICO Indemnity Co. recently notified the Department of Insurance and Financial Services of a proposed shift in its programs in that state. The company said that it intends to suspend its writing of a new private auto business, effective for a five-year period beginning Jan. 6, 2022. As GEICO Indemnity pursues "a more effective long-term underwriting company strategy," all new business writings would be moved into what the company characterized in a filing as the "more modern rating structures" of Government Employees Insurance Co.
The initial Michigan documentation indicated that the successor underwriter would require enrollment in telematics, but an updated version of the filing struck that language. GEICO did not return a message seeking comment.
As is the case in the other states, GEICO will allow its existing business to remain in the incumbent underwriting company so as "to avoid disruption and large premium changes." GEICO expects that the new structure will enhance its competitive position in Michigan "by more accurately matching rates that are reasonably related to the risk each applicant provides."
The states involved in GEICO's new business transition run the gamut from large to small. Texas and New Jersey ranked as GEICO's fourth- and fifth-largest states, respectively, based on 2020 direct premiums written, while Michigan and Nebraska were the company's seventh- and eighth-smallest states on the same basis.
The top five U.S. private auto writers — the group led by State Farm Mutual Automobile Insurance Co., GEICO, The Progressive Corp., The Allstate Corp. and the group headed by United Services Automobile Association — are at different stages of their telematics pursuits. But ubiquitous availability of usage-based insurance from company to company could eventually contribute to telematics becoming a required feature of the private auto underwriting process as opposed to an option. Allstate, according to a recent Wall Street Journal report, has been seeking to strike a dialogue with regulators about transitioning over time to a telematics-focused approach.
GEICO's new structure offers greater flexibility to mount a competitive response should that effort gain traction.