Geico’s laying off 6% of their employees and saying they are going to invest in ‘IT’. But will it make a difference? Or will they just repeat the industry’s technology mistakes?
For many years Geico had a simple but effective growth strategy: Undercut the competition by selling directly to consumers and use the savings to aggressively market to them that “Fifteen minutes could save you 15% on your car insurance”. They and Progressive long shared the limelight as the two market innovators that couldn’t be caught. And then Geico hit the wall and Progressive didn’t.
We believe Geico’s recent poor underwriting results are driven by insufficient differentiation between risks. Auto insurance risks not only differ widely by segment but also from policy to policy within segments. And in this unsettled environment different risks are evolving at very different rates. The fact is that carriers have been treating auto insurance risks as if they were a commodity when they manifestly are not. Insurance is a strange industry where a thousand-dollar premium can lead to a million-dollar loss. Which means that picking the right risks and avoiding the rest is critical to profitability. And that demands a highly differentiated, selective underwriting approach. Particularly when you’re trying to do so in ‘fifteen minutes or less’. It is a complex and exacting technological challenge that only one carrier – Progressive – seems to have mastered.
Not that the industry hasn’t spent a lot of time and money on tech. Indeed, they’ve spent over one hundred billion dollars of which analyst firm Gartner Group admitted they couldn’t identify carriers deriving ‘any measurable value’ from. It’s not that the investments were wrong, it’s just that they didn’t go far enough, only laying the foundations for what they failed to implement next: Advanced Risk Selection.
We believe that the real innovation opportunity in P&C personal lines insurance is in building sophisticated real time risk selection capabilities onto the new core systems platforms they’ve acquired. Done right, risk selection at POS and throughout the policy lifecycle is a complex and technically challenging discipline but the only one that directly addresses the cost of claims which after all are by far the largest ones carriers incur.
Geico’s CEO says they have decided to no longer be tech laggards. But the question is will they follow the industry and focus their billions on capabilities that fall short? Or will they learn from others’ mistakes and Progressive’s obvious success?
Only time will tell.
VeracityID delivers composable Advanced Risk Selection solutions to P&C insurers on a native cloud platform called idFusion™. Offered as a subscription service, idFusion integrates with online origination/transaction processing platforms and core systems to deliver user-designed, in-transaction risk detection, intervention, and resolution solutions.