Different Business Models for Auto Insurers

Contributed by mm | August 21, 2006 3:36 PM PST

This Fool.com's feature can be seen as a great description of different business models employed by the top auto insurers. Smart buyers of auto insurance can learn the pros and cons of dealing with different players in the industry by reading this.

From Fool.com:

GEICO's model allows the customer to call the company direct, bypass the agent, and usually get a lower rate. So if this business model is clearly cheaper, and more competitive, then why aren't others following suit?

Well, State Farm and Allstate have around 17,000 and 13,000 captive agents, respectively, who were trained to exclusively market their company's insurance products. If Allstate or State Farm, in a shot of competitive genius, decided to get an 800 number and cut out the middleman, they would be staring out at an army of their own jobless insurance agents.

Here, then, is what we know: (1) GEICO's business model enables it to consistently underprice its largest competitors, and (2) these competitors would find it very difficult to adopt this model.

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