There are times in the history of the insurance industry when one company boldly steps out of the marching lane and travels in a better direction. Allstate made such a move in the early seventies when it strongly and repeatedly came out for air bags. Next week, the bold foray will belong to the Progressive Insurance Co. headquartered in Cleveland, Ohio. Led by the intrepid Peter Lewis, who says he heard the wake-up call of the victorious Prop. 103 insurance reform in California, Progressive will commence a pilot project in San Diego that provides shoppers with a comparative auto insurance rating service. It answers the question most asked by buyers of auto insurance: “How can I find the cheapest insurance premium given equal coverage among the many policies the companies are trying to sell me?
For years, auto insurance executives would say that their business is a fiercely competitive one. For years, consumer advocates would say that consumers do not have the comparative price information to rationally shop around to make the market competitive even within the narrower definitions of the industry itself.
Here is how the service is supposed to work through an 800 number, 24 hours a day. The consumer calls a live serviceperson and provides information regarding vehicles, drivers, driving records and coverages. At first, only “good drivers” can be serviced. Progressive’s computers rate the risk and produces a package of quotes from the ten largest auto insurers in the market area. Smaller companies, initially, would have to pay to be part of the data base.
The quotation sheet you would receive, mailed overnight, lists the price of the insurance policy by company name based on the information you provided. In one sample listing for a two driver, 3 car family, the cheapest company was less than half of the price of the most expensive one. Even though the coverage was identical, the six-month prices for the top companies in that market varied over a range of $1300 between the two extremes.
This spread illustrates the lack of a competitive, efficient marketplace. It also convinced Progressive that a substantial number of auto insurance shoppers will patronize its Auto Insurance Information Network.
The service will cost $25 for a printout with a money back guarantee if the customer is dissatisfied. If this price service, by company name, expands throughout California and later the rest of the country, as Progressive intends, the cost to consumers will probably drop substantially. The company swears that this customer database will not be for sale.
Company officials have been working on this project for year. It has been a task of great complexity in developing the software for the huge amount of data that must be kept up to date and superaccurate. One can imagine how intense will be the interest of State Farm, Farmers Insurance, Safeco and Geico — to name a few large firms — in detecting any inaccuracies.
Progressive is presently not selling new policies in California. But the question naturally arises: what happens in a state where Progressive is selling and comes out lower on the list of “best buys?” “We’ll have to face up to that if it occurs,” said a company official.
While another company specialist declares that “we want to take the hardship out of shopping for insurance,” he also adds that “this type of product has the potential to radically change the structure of the insurance industry and create a truly competitive market.”
Indeed, it could. But before expanding beyond San Diego to the rest of the country and before Progressive’s pricing service spreads into other insurance sectors beyond auto, there will be controversy and cries of outrage and smiles of satisfaction among the various insurance companies depending on how they come out on the charts.
Proposition 103, which Californian voters enacted in 1988, requires the state Insurance Commissioner to develop such a comparative pricing service for consumers. But the Commissioner has not begun to set up such a system not even to contract with any specialized firm to develop the structure.
Progressive’s Chairman, Peter Lewis, saw the opportunity and, as the saying goes, the rest may be history.