The Auto Insurers' $4.6 Billion* Opportunity: Massachusetts

Massachusetts 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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