In auto insurance, the direct model is winning, the value of independent agents is diminishing and the proof is in an examination of the continued rise of Geico—the only major pure direct model—versus challenges at Progressive Corp. due to a “legacy agency business,” according to an analysis released today.
In a report, “PGR Losing the Race to Geico,” investment bank Nomura analysts Cliff Gallant and Matthew Rohrmann argue that auto insurance has been commoditized, and in a world where price rules, the direct model wins, as savings from not paying commissions can be used to offer lower rates while maximizing ad spend.
“We believe a critical point has been crossed in the American consumer's view regarding auto insurance, making it a commodity,” the analysis states. “The causes are numerous, including relentless ads emphasizing cost, increased comfort with online shopping, falling numbers of claims, tight household budgets and improved auto safety.”
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