A Reuters article I saw this morning highlights the competitive pressures that face auto insurers in the next few years:
A re-energized GMAC Insurance, backed by private equity funding, aims to be one of the top five U.S. auto insurers in the next five to eight years, chief executive Gary Kusumi said on Monday.[...]
GMAC is now ranked 21st in the auto insurance market by A.M. Best Co. Its ambitions will put further pressure on earnings at other insurers, industry analysts said.[...]
Kusumi’s goal would grow the modest-sized insurer nearly three-fold in [the next 5-8 years....]
Progressive said last week that May earnings fell 35 percent and has told investors it is cutting rates to retain and capture customers.
The article also mentions that GMAC is planning to utilize its relationship to GM and its access to OnStar to provide “low mileage discounts” (i.e., the potential for GPS-based rating). Exactly how that squares with Progressive’s patents on the algorithms remains to be seen, however.
I still believe that auto insurance is an incredibly fun business to price, due to the competitive nature of the business, and the wealth of information available to potentially play with. However, it won’t be too long before the profit margins really begin to suck again, and it becomes clear who’s actually practicing business discipline, rather than simply focusing on the top-line premium figures.