The Auto Insurers’ $4.6 Billion* Opportunity: Massachusetts
Written by Bryan Revis (contact - e-mail) -- January 11th, 2008 | Recommend ThisMassachusetts opens its doors
Massachusetts is one of the last states to loosen its control of auto insurance rates and potentially the criteria insurers may use to set those rates. Until now, those two factors have deterred several of the nation’s major carriers, like GEICO and Progressive, from insuring in Massachusetts. But with a new “managed competition” system set to begin April 1st (i.e., competitors may set their own rates, subject to state approval), consumers and insurers alike are trying to figure out how this will reshape the competitive landscape.
After all, Massachusetts is an attractive market. Currently, only 19 insurers sell private passenger auto coverage in the Commonwealth (compared to an average of 36 per state nationally). In addition, Massachusetts ranks among the top five states in most expensive auto insurance premiums and among the top ten in number of insured automobiles, according to the Insurance Information Institute.
Auto insurance online is a big business
Even though GEICO and Progressive are giants in the auto insurance world, neither currently offers private passenger coverage in Massachusetts, and even with the announcement of these relaxed restrictions, neither has officially filed to enter the Bay State. But that may only be a matter of time. Check out the overall growth in online visitors to these top two online sellers from the past few years, which rank third and fourth nationally in terms of share of total auto insurance premiums written. (Progressive holds 7.3% and GEICO holds 6.7% of private passenger auto direct premiums written in the U.S.)
History often repeats – New Jersey as an example
Similar to Massachusetts, New Jersey chose to overhaul its auto insurance regulations back in 2003. A year later, GEICO joined the New Jersey market, after it received approvals to set rates based on a driver’s occupation and education in addition to credit history. GEICO then became the first insurer in New Jersey to offer online binding for auto policies. Progressive soon followed, entering New Jersey’s market in 2006.
The sequence of events in New Jersey between 2003 and 2006 may be an indicator for what could happen in Massachusetts starting in 2008. As you can see, GEICO and Progressive have more than doubled their share of New Jersey motorists’ attention since 2004, and subsequently, have become a true competitive threat to the state’s traditional leaders in the market.
Massachusetts’ auto insurance market appears to be even more vulnerable than New Jersey’s was. There is considerable growing interest online from Massachusetts in GEICO and Progressive vs. national growth – despite the fact that neither currently sell in Massachusetts. While the massive advertising dollars these companies have invested are certainly driving growth nationally (e.g., GEICO spent more than $500M in 2006), the large interest by Massachusetts online visitors seems indicative of the risk current Massachusetts insurers may face in losing existing customers if competitors like GEICO and Progressive enter the state.
More clues
In addition to giving insurers freedom to compete on rates, the possibility that Massachusetts might relax restrictions on using socioeconomic factors in rate setting could make Massachusetts even more attractive. The signs that GEICO and Progressive are considering entering Massachusetts are evident. Warren Buffett (CEO of Berkshire Hathaway, parent of GEICO) told the Boston Globe in August 2007 that he would like to see GEICO in Massachusetts. And just last month, Progressive appeared to be testing the waters by applying for a license to sell personal auto policies in Massachusetts.
To find out what’s around the corner, we’ll be following the online trends. But don’t be surprised if you see more auto insurance ads around the Bay State.
*Calculation based on $1,113 average Massachusetts automobile insurance expenditure multiplied by 4,146,762 private passenger cars insured in Massachusetts equals $4,615,346,106. (Insurance Information Institute, 2005 data)
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January 11th, 2008 at 2:05 pm
I think this article has some flawed analysis.
Using visitors to a website as a measure of competition is a weak and unreliable metric. The definition of a visitor is not given and the intrinsic weakness of that sort of data is well documented elsewhere.
In addition, the charts don’t give proper scales. The growth chart does not tell me whether it’s measuring growth year over year or whether it’s showing growth with number of total visits having grown year over year.
A more reliable analysis would include share of the market that GEICO and Progressive took compared to the method in which they received it. That is a better metric than how the customer came through the door, even if that data is harder to find.
January 11th, 2008 at 5:24 pm
Thanks for your interest in this topic, Jay. For all of these data points, we’re measuring “people counts” (unqiue monthly visitors). We’ve used unique visitors at the domain level for GEICO and Progressive simply to underscore the growing interest in these companies over the past five years. Certainly we can measure other types of activity (online quoting, account managers, etc.), but in this post we’re just considering the “big picture.” If you’re unclear on how we derive our analytics for unique visitors, I encourage you to visit our FAQ page at http://www.compete.com/help#snp3.
The growth chart indicates year-over-year growth of unique visitors (not visits), but the point is really that the interest among Massachusetts visitors is spreading at a faster pace than the national average. Perhaps because premiums are higher, and consumers have fewer choice of providers.
I’m not sure I understand your third point about market share compared to the method in which they received it. If you’d like to clarify, I’ll be glad to comment.
January 12th, 2008 at 12:48 am
Interesting piece, in more detail could you analyze HOW those visitors are finding those sites?
Are they coming via SERPs, PPCs, Offline print Media, commercials?
January 12th, 2008 at 9:50 am
I live in Massachusetts and just read this piece. Thanks for the great information and showing how the web can track how the playing field changes. I disagree with Jay. Using website traffic is a great measure of competition. Here’s a great example: http://siteanalytics.compete.com/circuitcity.com+bestbuy.com/?metric=uv. I just read an article on how Best Buy creamed Circuit City over the holidays and the graph shows why. Circuit City website traffic actually declined in December - the busiest retail month of the year!
January 14th, 2008 at 9:51 am
Geico and Progrsive don’t actually compete in MA, so I highly doubt that the author has attempted to “measure competition.” What he has measured is consumer interest… and quite aptly too. The only thing flawed here is your suggestion that the author is trying to say something, which the rest of us can quite clearly see he is not trying to say.
February 3rd, 2008 at 8:12 pm
I’m sure as happened in New Jersey, auto insurance companies will flood the Massachusetts market. I think this is good for consumers because competition causes rates to decrease and consumers benefit. I thought that Massachusetts already allowed carriers to file for their own rares because sites like http://www.onlineautoinsurance.com already do offer rate comparisons in Massachusets.
March 28th, 2008 at 11:11 am
I think the true measure of how Mass auto insurance is would be State Marektshare by Carrier as of 4/1/08 then repost on 4/1/09. Does anyone have the current marketshare by carrier?
April 21st, 2008 at 9:49 pm
Deregulation is a good thing and should have occurred years ago. The best way to lower rates for consumers in the state.
May 30th, 2008 at 4:29 pm
Great article. Our clients (independent insurance agents) are definitely felling the effect of Geico and are realizing they need to be more competitive in the online space.
August 20th, 2008 at 12:27 pm
this is a quite interesting point for all the auto insurers. this will definitely boost the sale.