GIECO Insurance Company Essay
GEICO was founded by Leo Goodwin and his wife Lillian Goodwin in 1936 to market auto insurance directly to federal government employees and their families. Goodwin was inducted into the Insurance Hall of Fame due to the success of the company. GEICO’s business model is based on the assumption that such persons would constitute a more financially stable and less risky pool of potential insureds than the general public.
After real-time access to computerized driving records became available in the 1970s throughout the United States, GEICO began to insure the general public in addition to its target demographics. GEICO is, currently, wholly owned subsidiary of Berkshire Hathaway and provides coverage for more than 10 million motor cars, trucks and other motor vehicles owned by more than 8 million policy holders. GEICO writes private passenger automobile insurance in the District of Columbia and in all U. S states except Massachusetts.
Their headquaters are located at 5260 Western Avenue, Chevy Chase, Md. 20815 GEICO generally deals directly with consumers via the telephone and the Internet, freeing up capital that would otherwise be spent on employing insurance agents in the field and making the company the nation’s largest direct writer of private auto insurance. GEICO
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The name goes back to GEICO’s first customers in 1936, who were government employees and Military personnel. Founder Leo Goodwin went into business determined that he could deliver automobile insurance at reduced prices by selecting prime customer groups and marketing directly to them. Goodwin succeeded in driving down operating costs and passed on the savings to policyholders up front as discounts. GEICO continues to find ways to manage its business costs in order to offer savings to all drivers today. GEICO commands a large market base in the U. S.
A. It has averagely 8. 5 million auto policyholders, insuring more than 14. 4 million vehicles. GEICO is the third-largest private passenger auto insurer in the United States based on the latest 12 months written premium. GEICO’s parent company, Berkshire Hathaway, is the 3rd largest property/casualty insurer in the world . It is among fast-growing major auto insurer in the U. S. , with policies-in-force growth of 8. 8 percent in 2007 with 23,000 associates 12 major offices around the country Provides 24-hour service, 7 days a week, 365 days a year.
GEICO/Berkshire Hathaway and its affiliates (GEICO General, GEICO Indemnity and GEICO Casualty) enjoy the highest ratings in the industry for financial strength and claims-paying ability: • AAA rating from Standard and Poor’s • Aaa from Moody’s • A++ from A. M. Best The ratings are based on GEICO’s extremely strong financial strength, which is supported by its extremely strong capital adequacy and conservative reserve position,” said the bulletin. GEICO’s cost-efficient, direct-response marketing methods and its emphasis on customer satisfaction have established its brand name and competitive position within the U.
S. personal auto insurance market. Standard & Poor’s believes that GEICO’s direct platform provides a significant cost advantage over its peers. S&P also noted that GEICO continues to report very strong operating results through disciplined underwriting. Its combined ratio was 94 percent in 2003 and 89 percent through the first quarter of 2004. In addition, GEICO has a consistent investment earnings stream that is complemented by realized capital gains inherent in its total-return strategy.
The announcement indicated, however that these positive factors are partially offset by the group’s risk portfolio and geographic concentrations. Personal auto and auto physical damage writings constituted more than 99 percent of GEICO’s premiums in 2003. In addition, roughly 48 percent of GEICO’s direct writings are generated from four Eastern Seaboard states. GEICO holds a limited number of concentrated stock investments to diversify its investment portfolio. S&P said GEICO is expected to maintain its expense advantage, which is a significant strength to the rating.
In addition, capital adequacy is expected to remain extremely strong in 2004. Barring the potential negative earnings impact of large loss events or investment risk, expectations are that GEICO will continue to generate very strong earnings in 2004. GEICO operations are customer friendly. They offer their services to customer’s 24-hour service, 7 days a week, 365 days a year. They have a broad distribution of their services. They work through regional and service centers.
The regional offices include: Fredericksburg in Virginia, Woodbury in New York, Macon in Georgia, San Diego in California, Dallas in Texas, Lakeland in Florida, Virginia Beach in Virginia, and Buffalo in New York. Service centers include: Coralville in Iowa, Tucson in Arizona and Honolulu in Hawaii. GEICO has taken a special interest in serving the U. S. Military since the company’s founding in 1936. GEICO provides discount programs and service options that can best serve U. S. troops at home and overseas during wartime as well as peacetime.
In addition to auto insurance, GEICO offers customers insurance products for their motorcycles, all-terrain vehicles (ATV’s), boats, homes, apartments and mobile homes. Personal umbrella protection and life insurance are also available. The insurance industry is highly competitive. GEICO currently competes most directly with other companies, including mutual companies (which historically write approximately one-third of all property-casualty insurance in the United States), that concentrate on preferred risk private passenger automobile insurance and, to a lesser extent, for standard and nonstandard risks.
Because personal lines property and casualty insurance is so stringently regulated by each state in which the Companies do business, it is difficult for companies to differentiate their products. Additionally, some companies exacerbate price competition by selling their products at inadequate rates for a period of time, because long delays in reporting and settling certain claims result in underestimating ultimate loss costs, or the products are sold in anticipation of profits from their investment portfolios.
Consequently, GEICO’s business is very sensitive both to the price of its product and the perceived level of customer service it provides. Competition for preferred risks, which is substantial, tends to focus on issues of price and service, while price is a more significant factor to other risks. The GEICO Companies place great emphasis on customer satisfaction and write their auto business predominantly with six-month policies, allowing them to manage rate changes more effectively. GEICO also believes its reputation is a material asset and protects its name and other service marks through appropriate registrations.
GEICO offers a variety of coverages and policies to its customers mainly in auto insurance. Auto insurance is a package of seven primary coverages. Taken together, these coverages make up a standard auto policy. Each of these coverages has its own separate premium adding up to premium payment as the total of these separate premiums. In addition to the above mentioned primary coverages, there are additional premiums you can also add on coverages such as GEICO’s Mechanical Breakdown Insurance and Emergency Road Service.
Bodily injury liability provides protection if you injure or kill someone while operating your car. It also provides for a legal defense if another party in the accident files a lawsuit against you. In the event of a serious accident, you want enough insurance to cover a judgment against you in a lawsuit, without jeopardizing your personal assets. Bodily injury liability covers injury to people, not your vehicle. Therefore it’s a good idea to have the same level of coverage for all of your cars.
Medical payments, no-fault or personal injury protection coverage usually pays for the medical expenses of the injured driver and passengers in your car. There may also be coverage if you are injured by a vehicle as a pedestrian. Uninsured motorists coverage pays for your injuries caused by an uninsured driver or, in some states, a hit-and-run driver, in a crash that is not your fault. In some states there is also uninsured motorist coverage for damage to your vehicle. Comprehensive physical damage coverage pays for losses resulting from incidents other than collision.
For example, comprehensive insurance covers damage to a car if it is stolen; or damaged by flood, fire or animals. Collision coverage pays for damage to your car when your car hits, or is hit by, another vehicle or other object. This coverage is not recommended for older cars and those with older cars should consider dropping this coverage, since its normally limited to the cash value of your car. Property damage liability protects you if your car damages someone else’s property. It also provides you with legal defense if another party files a lawsuit against you.
It is a good idea to purchase enough of this insurance to cover the amount of damage your car might do to another vehicle or object. Rental reimbursement coverage pays for a rental vehicle (usually up to $25 a day) when the insured’s vehicle is out of commission as a result of a loss covered under comprehensive or collision coverages. Home insurance policies are designed to provide financial protection in the event of damage to your home, such as fire or water damage. These coverages are usually a homeowner’s main concern, but most policies don’t stop there.
Your policy will also protect your personal property, such as furniture that is damaged as a result of a fire, or the theft of electronic equipment. In addition you can be protected from liability as a result of homeownership, such as a visitor who slips on your steps and breaks an arm. The standard home owners policy covers the following: • The physical structure of your home, permanent structures on your property, and your personal property. • Personal liability exposures that arise from being a homeowner.
• Additional costs that you may incur as a result of a covered loss, such as a fire in your home that makes it uninhabitable. The house insurance policy that you purchased determines which perils insured against. Most homeowners’ policies are written under the HO-3 contract form. An HO-3 is a standard form throughout the industry, so you can use this to determine if you’re getting equivalent coverage along with any differences in premium or level of service. The HO-3 contract form provides coverage for the following: • Broad coverage for your dwelling.
Damage to your dwelling from most causes is covered unless it is specifically excluded. • Damage to your personal property for “named perils” only. Your personal property is covered only against the perils specified in the contract. • Limited coverage for jewelry that is stolen. Coverage is usually $500 to $2,000, depending on your state of residence. Most policies don’t cover jewelry that is lost. GEICO uses rate-making methods that directly base eligibility and premiums solely upon the educational background and occupation of consumers.
GEICO underwriting guide shows that the company, has adopted rating methods and underwriting guidelines in 44 states that directly base rates and eligibility for auto insurance solely upon education and occupation. Use of this information results in an unjustifiable increase in insurance rates for many lower income and minority consumers insurance regulators to ban the practice. The use of education and occupation to underwrite and price is a long-standing industry practice which Geico uses among other criteria to accurately differentiate risks.
Every criterion, including occupation and education, used by Geico reflects its actual loss experience nationwide over many decades. Geico is pulling an underwriting sleight-of-hand that allows it to skirt existing prohibitions on the use of income and race to determine insurance rates and eligibility. Under Geico’s underwriting methods a factory worker without a four-year college degree in New Orleans who has the same qualifications and driving record as an attorney with a professional degree would pay 90. 75 percent more for coverage.
In order to price insurance, Geico uses a combination of several dozen factors. No single criterion is ever used to determine a customer’s rate. Income or race based criteria never has a role in underwriting or pricing. Driving experience, past loss history, age, gender and marital status are widely accepted rating factors that have been approved by state regulators because they are accurate predictors of future losses. Reams of evidence prove that women, married people, and experienced drivers have fewer losses and, as a result, pay lower premiums.
Demographic factors such as occupation operate in exactly the same manner. Allowing companies to use a wide range of underwriting and rating tools promotes market competition and choice and ultimately drives down the cost of insurance for consumers,” Geico says. Arbitrary restrictions on actuarially justified rating and underwriting factors harm the insurance marketplace by stifling competition and innovation, according to PCI. The bottom line is that consumers benefit when insurers seek to find more accurate ways to match rates to risk and when there are a variety of options in the marketplace.
These strategies drive competition among other insurers and that helps consumers by providing fairer rates and lower overall prices. Low premiums are no bargain if the company you buy insurance from doesn’t have the financial resources to pay your claim. A wholly-owned subsidiary of Berkshire Hathaway, Inc. , GEICO has assets of over $15 billion. Here’s what independent analysts say about GEICO’s financial strength. A. M. Best a leading independent analyst of the insurance industry has consistently given GEICO its highest A++ rating for financial stability.
Only five percent of Property and Casualty companies earn this superior rating. Standard & Poor’s (S&P) has consistently awarded all GEICO affiliates an AAA rating for financial strength—its highest grade. And GEICO has earned the Standard & Poor’s coveted Security Circle designation. That means GEICO underwent S&P’s most rigorous review and achieved top ratings for financial strength. Reference WWW. GEICO. COM AM BEST RATING Standard & Poor’s website Insurance Industry Basics Combined Ratio www. berkshirehathaway. com