HomeNews & IdeasPerspectivesIt's time for the auto industry to fight right

It's time for the auto industry to fight right

Pity the leaders of America’s auto insurance carriers:  they’ve been making herculean efforts to compete: investing billions in new core systems, expanding into new markets and channels, upping their advertising spending and losing tons of money in the process only to discover that in 2018 the whole industry lost market share to the same two operators they’ve been chasing for years: Geico and Progressive.

What is happening? Why have years of investment in “digital transformation”, direct distribution and clever advertising campaigns not paid off more in terms of either market share or profitability? What’s wrong with this picture?

We don’t claim to have the whole answer but one thing is quite apparent:  the efforts that carriers have made to grow their auto businesses have resulted in more losses from fraud and rate manipulation than they’ve ever experienced before, causing the industry’s strategic efforts to backfire:

  • New core systems designed to increase carrier’s speed, efficiency and responsiveness to customer requirements have simply made it faster and more efficient to write unprofitable business.
  • New direct marketing channels have achieved lower distribution costs only only to see them swamped by much higher fraud costs.
  • And the more carriers market to new customer segments and geographies, the more they ‘win’ loss making business.
The natural response to this type of financial carnage is to pull back, to curtail the initiatives that are losing so much money – to not fight as hard for new business, in other words: shrink. Indeed knowledgeable market observers have suggested that the rest of the industry give up trying to compete with the two market leaders because they just can’t win.
We disagree. We believe that if the problem is fraud thenthe industry’s rapid automation and distribution changes have inadvertently increased the ease and therefore incentives for its customers to commit petty insurance fraud. Unprepared for this, most of the industry has pulled back from aggressive marketing and selling initiatives resulting in the lost market share result. 

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