Who's Winning the Fight for Your Auto Insurance Premiums?
Get a fast and free car insurance rate comparison
Source: National Association of Insurance Commissioners
Includes insurers such as Farmers and 21st Century
- Out of the five largest auto insurers, Progressive and GEICO saw the most growth in market share and premium volume between 2009 and 2012.
- State Farm, Allstate, and the Zurich group of companies have had decreasing market share.
- GEICO had the largest jump in both premium volume and market share between 2009 and 2012.
- More than half of all premiums (52%) go to the top five largest auto insurers.
New data released in April by the National Association of Insurance Commissioners show that the nation's personal auto insurers wrote more than $174.57 billion worth of car insurance premiums last year, with State Farm still firmly holding onto its title as the biggest auto insurer in America.
Our analysis of the NAIC premium data shows that the portion of Americans' auto insurance premium dollars going to the country's five largest insurers has gotten larger since 2009.
Last year, 52.15 percent of all auto insurance premiums written in the U.S. were written by one of the five largest insurers or insurer groups. That's up from 51.18 percent in 2009.
Who are the five largest insurers? State Farm, Allstate, GEICO, Progressive, and Zurich Insurance Group (a collection of insurers including big names like Farmers and 21st Century).
Over the past four years, the top five insurers' collective share of the market increased by only about 1 percentage point. That may seem insignificant, but that 1 percentage point bump represents a $3.6 billion increase in the gap between the top five's market share and everyone else's. In 2012, the top five insurers together wrote about $91 billion worth of auto insurance premiums combined. All of the other auto insurers together wrote a total of $83.5 billion worth of premiums.
The hierarchy in the top five has stayed the same since 2009, but there appear to be some emerging trends that may hint at a changing auto insurance market landscape.
One of the biggest trends that the numbers show is the slowly shrinking market share of traditional insurers like State Farm and Allstate and the fast rise of more modern insurers like GEICO and Progressive. All four of these companies increased their car insurance business between 2009 and 2012, but GEICO's and Progressive's increases are enormously more noticeable.
State Farm and Allstate collectively increased their premiums by 3.7 percent over the past four years. Compare that with the increases at GEICO and Progressive : these two insurers collectively increased premiums by a little over 21 percent during the same period.
If the current trends continue, GEICO looks set to swipe Allstate's standing as the country's second-largest auto insurer by as early as next year.
So how do the traditional insurers and the more modern insurers differ?
One of the biggest differences between the more traditional insurers (like State Farm, Allstate, and Farmers) and the more modern insurers (like GEICO and Progressive) is that the latter group relies more heavily on direct-to-consumer marketing methods. Direct-to-consumer marketing cuts out the middlemen (agents and brokers) and connects the insurer directly with consumers through the mail, the web, on TV, and over the phone. Allstate and State Farm, on the other hand, rely more heavily on traditional agents and brokers selling and servicing their financial products.
According to most recent consumer survey from comScore, shoppers still have a larger preference for buying insurance products from an agent in person, but the proportion with a preference for buying online is growing. According to that report, the proportion of consumers who said they'd likely purchase a policy online in the future jumped from 28 percent to 34 percent between 2008 and 2011. Meanwhile, the proportion of shoppers saying they were unlikely to purchase online in the future dropped from 48 percent to 22 percent.
In an attempt to evolve with the times, Allstate purchased web-based, direct-to-consumer insurer Esurance in October 2011. Fitch Ratings analyst Doug Pawlowski says that Allstate's purchase of Esurance is likely a "direct response" to what's going on at Progressive and GEICO but that "it's really very early to tell" whether Allstate will fully benefit from the acquisition. In any event, Allstate is now drawing customers from "many different sources" that include career agents, independent agents, and direct-to-consumer channels.
Shifts in Advertising Strategies
One thing that unites the top five insurers is their huge investments in advertising. According to data compiled by SNL Financial, between 2010 and 2011, the average annual advertising budget at each of the top five auto insurers was $660.2 million. Meanwhile, the average annual advertising budget for the five next-biggest insurers was less than a third of that: $189.7 million each.
But data on the public's perceptions of these companies shows that consumers appear to put the four largest auto insurers into two camps. According to a 2011 J.D. Power and Associates report, most consumers view GEICO and Progressive as relatively "fun" and "inexpensive," while they view State Farm and Allstate as relatively "serious" and "expensive."
Whether these perceptions are part of the cause of State Farm and Allstate's relative stagnation and Progressive and GEICO's growth is up for debate, but the correlation seems pretty clear.
Now, let's take a closer, company-by-company look at the four largest personal auto insurance companies.
|Market share (2012)||18.39%|
|Market share change (from 2009)||$860|
|Written premiums (2012)||$32.1 billion|
|Written premium change (from 2009)||+4.95%|
|Ad spending (2010 + 2011)||$1.44 billion|
|Loss ratio (2012)||70.22|
With more than $32.1 billion in written auto insurance premiums in 2012, it doesn't look like State Farm will be getting bumped from its place as the largest auto insurer any time soon. For the runner-up (Allstate) to overtake State Farm, it would have to increase its premium volume by $13.48 billion, which would amount to a 77 percent increase in premiums.
Market share: State Farm's hold on the market has been relatively stable. It still controls 18.39 percent of the market, although that's down 0.24 percentage points from 2009. Of the three insurers in the top five who saw declining market share, State Farm saw the smallest drop.
Written premium trend: State Farm increased its written premium volume nearly 5 percent (or $1.5 billion), between 2009 and 2012. Out of the top five auto insurers, State Farm's rate of premium increase was the third largest.
Advertising: State Farm has the second-largest advertising budget out of all property/casualty insurers, according to data from SNL Financial. Between 200 and 2011, State Farm was outspent only by GEICO.
In 2011, State Farm spent $813.5 million on advertising, which amounts to a 29 percent increase from the $629.8 million it spent in 2010.
According to a management discussion report authored by J.D. Power and Associates that measured brand image, State Farm was perceived to be relatively "serious" and "expensive."
Loss performance: In 2012, State Farm had a loss-to-premium ratio of 70.22. That means about 70.22 percent of the auto insurance premiums State Farm took in ended up getting spent on claims, defense costs, and cost containment. The remaining money ends up going toward running the company and paying out dividends to policyholders.
State Farm has the second-worst loss-to-premium ratio in the top five and the seventh-worst among the 25 insurers included in the report. Even though State Farm's loss ratio is relatively high compared with other insurers, it has improved a lot since 2009. The loss ratio was actually seven points higher back then.
|Market share (2012)||$771|
|Market share change (from 2009)||$860|
|Written premiums (2012||$925|
|Written premium change (from 2009)||$925|
|Ad spending (2010 + 2011)||$1.41 billion|
|Loss ratio (2012)||67.66|
Allstate has kept its spot as the No. 2 largest auto insurer for some time now, but its relative stagnation combined with the rapid growth of GEICO and Progressive are threatening its hold on that spot. One recent report showed that GEICO has surpassed Allstate, but only for the first quarter of 2013 so far.
To keep up with the up-and-comers, Allstate recently purchased direct-to-consumer insurer Esurance to help with its presence online, and it's currently in the middle of a major expansion of its DriveWise usage-based insurance discount program
Market share: From 2009 to 2012, Allstate kept its runner-up spot in the auto insurance rankings, but it's not clear how long it will stay there. The company saw a 0.5 percentage point market share drop since 2009, the largest decrease among the top five insurers.
If both companies follow the trends they've been setting over the past four years, GEICO should overtake Allstate in 2013.
In 2009, 10.51 percent of all written auto insurance premiums were written by Allstate. After a few dips and rises, it was left in 2012 with control of 10.01 percent of the market, dangerously close to sinking below the 10 percent line.
Written premiums: Even with the acquisition of Esurance that was completed in October 2011, Allstate's premium volume hasn't been growing as rapidly as its competitors in the auto sector.
In 2009, Allstate wrote $17.25 billion in auto insurance premiums. By 2012, that number had grown by $228.7 million, or 1.33 percent. That's no small sum, but, to put it in perspective, GEICO's premium volume growth for the same period was 13 times bigger: $3.27 billion.
According to Allstate's 2012 annual report, increasing average auto insurance premiums and purchasing Esurance were the main drivers of the premium volume increase in 2012.
Advertising: Allstate had the third-largest advertising budget of property/casualty insurers between 2010 and 2011, spending on average $706 million a year.
In 2011, much of that advertising budget was spent trying to create brand awareness through the introduction of its new "Mayhem" campaign. According to J.D. Power, Allstate is similar to State Farm in that the brand's image is associated with being more "serious" and "expensive" than "fun" and "inexpensive," and the Mayhem campaign was part of a larger attempt to change that. The J.D. power study reported that there was in fact an increase in brand awareness and quote rates at Allstate following the roll-out of the new campaign, but the company still has one of the lowest quote rates overall.
Loss Performance: Allstate's loss performance is currently better than GEICO's and State Farm's, but it has been worsening since 2009. At that time, about 61.5Â¢ of every auto insurance dollar the insurer collected went toward paying claims, preventing future claims, and legal defense fees. In 2012, that amount has grown to 67.66Â¢ of every dollar.
|Market share (2012)||9.59%|
|Market share change (from 2009)||+1.38 percentagepoints|
|Written premiums (2012)||$16.748 billion|
|Written premium change (from 2009)||+24.24%|
|Ad spending (2010 + 2011)||$1.9 billion|
|Loss ratio (2012)||70.37|
Since Berkshire Hathaway bought GEICO back in 1996, the company has grown into a powerhouse direct-to-consumer insurer, largely focusing on doing business directly with customers rather than having to go through agents and brokers to sell their financial protection. Berkshire's Warren Buffet has called this direct-to-consumer model one of the main reasons why GEICO has been so profitable.
Buffet sang praises of GEICO in Berkshire's 2012 annual report, saying "When I count my blessings, I count GEICO twice." And it's not hard to see why when you look at the numbers.
Market share: GEICO is giving Allstate a run for its money. Currently in the No. 3 spot, GEICO has increased its market share by at least 0.3 percentage points every year since 2009, going from 8.21 percent market share that year to 9.59 percent market share in 2012. That's the largest jump of any insurer included in the NAIC data and puts the insurer right on the heels of Allstate. What used to be a 2.3 percentage point gap between GEICO's and Allstate's market share figures in 2009 has shrunk to just 0.42 percentage points.
Written premiums: GEICO has seen astronomic premium growth since 2009 when compared with the other four largest auto insurers.
Written premium volume increased more than 24 percent, or by $3.27 billion, over the past four years. On average, the business increased its premium revenue by $1.09 billion every year between 2009 and 2012.
GEICO and other insurers owned by Berkshire have generated so much revenue for the company that executives call insurance the "core operation and the engine that has propelled our expansion over the years." However, they also note that "further gains will be tough to achieve."
Advertising: GEICO's the leader of the pack when it comes to advertising spending, with an average of $948 million a year spent between 2010 and 2011 to promote the ubiquitous GEICO gecko and cavemen characters.
According to the J.D. Power insurer marketing analysis, GEICO's brand image has been relatively consistent as the most "fun" and "inexpensive" insurer out of the four largest insurers. GEICO's ads use "humor to entertain the audience rather than to focus on product benefits" and "more narrowly focus on their longstanding message of fast quotes and 15 percent savings," according to the report.
Loss Performance: Compared with Allstate and State Farm, GEICO's loss performances have been pretty stable, but it also spends the most on claims of any insurer in the top five. According to the 2012 data, 70.37Â¢ of every dollar GEICO brings in in auto insurance premiums gets paid on claims-related expenses. That's the second-worst performance of any of the top 15 auto insurers.
|Market share (2012)||8.27%|
|Market share change (from 2009)||+0.8 percentage points|
|Written premiums (2012)||$14.44 billion|
|Written premium change (from 2009)||+17.8%|
|Ad spending (2010 + 2011)||$1.028 billion|
|Loss ratio (2012)||66.78|
Progressive has rapidly expanded its premium volume and market share by using traditional agents and brokers combined with an emphasis on direct-to-consumer marketing.
The emphasis on connecting with consumers directly has grown in recent years, and trends in the company's financial data show the fruits of those labors. Since January 2009, Progressive has gone from a 40/60 split for direct policies vs. agency policies to a 46/54 split.
Another large effort Progressive has launched in an attempt to woo new customers is the expansion of the company's Snapshot discount program, which allows drivers to plug in a device in their vehicle's diagnostic port, and it logs data about how the car is driven. If the users' habits behind the wheel are similar to the habits of drivers who have tended to cost the insurer less money on claims, the policyholder can get a discount of up to 30 percent.
In July 2012, Progressive launched a campaign to allow drivers insured by any company to try out Snapshot to see how they like it, obligation-free. None of the other large insurers offering usage-based options have had similar promotions.
Market share: Progressive, the country's fourth-largest insurer, increased its market share by 0.8 percentage points over the past four years, which is the second-largest increase of any insurer included in the NAIC data. Since 2009, Progressive has increased its market share by an average of 0.27 percentage points every year and now collects 8.27 percent of all personal auto insurance premiums.
Written premiums: Progressive has seen a premium growth rate second only to GEICO, increasing its written premium volume by $2.18 billion, or nearly 18 percent, between 2009 and 2012.
Advertising: Progressive has done well with its advertising efforts despite spending the lowest amount on ads out of the top four insurers. Between 2010 and 2011, the insurer spent an average of about $514 million a year on ads. That's $192 million less than the next-highest ad spender, Allstate.
According to the J.D. Power report, Progressive is similar to GEICO in that its image with consumers is relatively "fun" and "inexpensive." A large contributor that helped get Progressive to where it is now is its Flo character, who was introduced in 2008. According to the report, the company saw increases in both brand awareness and consideration among consumers after introducing Flo to the driving public.
Loss performance: Progressive had a relatively low and stable rate of losses between 2009 and 2012, spending an average of 64.45Â¢ on claims for every dollar it took in in premiums.