Subject: Re: GEICO vs Progressive
By the way, for those not familiar with this GEICO/Progressive/State Farm and the rest situation, Bloomstram expresses some of their differences a bit awkwardly, for instance when he say:

"GEICO operates largely with no agents or brokers involved in distribution. Paying a gecko is cheaper than paying commissions, thus GEICO's underwriting expenses are at a far lower portion of premiums earned than the competition. For this cost advantage, they tend to incur higher losses."

and

that GEICO will need "great ongoing effort to regain its low-cost provider position versus Progressive."

As Bloomstram says, GEICO is a low-cost provider because it doesn't have agents and offices like the other insurers; but this is also true of Progressive. So both of them start out with the advantage of low cost. And contrary to the second Bloomstram quote, this has not been lost by GEICO, and doesn't have to be regained.

The problem is having low cost is just one side of the equation; the ideal, to obtain really good combined ratios, is to have low cost AND low losses. It is in the loss category that Progressive really shines, and where GEICO has been lagging. And the most likely explanation for this, is that Progressive obtains better risk information about its clients, allowing them to underbid their competitors when the risk is low, and too set adequately high premiums when the risk is high, often losing the business of high risk clients to other insurers (like GEICO) who are less able to ascertain the high risk. If your competitor is taking your low-risk clients on whom you made lots of money (because you were charging them too much), and dumping the high risk clients on whom you lose lots of money (because you're not charging them enough), you end up with high losses, even if your costs are low.

The only way to fix this is to find ways to do better at assessing risk, and despite knowing about the problem for years now, GEICO doesn't seem to be catching up.