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How GEICO Is Delivering Shareholder Value To Berkshire Hathaway

Mr. Campbell mentioned that GEICO is the third largest auto insurer in the U.S. with a market share of 9%. State Farm is the largest with a 18% - 19% of the market, followed by Allstate (ALL) in second place with a market share of 10.5%. There are 400 companies that sell automobile insurance in the United States, although many of them sell insurance in one state. GEICO was adding fonts (customers) at a rate of 7% or 8% per year. They currently have over 10 million customers and has added approximately 700.000 to 800.000 customers in the past year. The U.S. market for auto insurance is a growth of only 1% per year.Therefore, GEICO's growth come mainly attract new customers from its competitors with its advertising campaigns and lower prices. In 1995, a year before GEICO was acquired by Berkshire Hathaway (BRK.A) (BRK.B), it spent $ 30 million on advertising. Currently, GEICO spent $ 900 million a year on advertising, with ads Gecko and Caveman are very popular and well known. GEICO has no current plans to expand outside the United States and is focused on continuing to grow its market share in the United States. GEICO spends more on advertising than its competitors.A main target is the 20-29 years old, as GEICO hopes to keep this age group as customers for many years. There are three segments in the market for auto insurance: risk preference, standard risk and high risk drivers. Insurance premiums are set in proportion to the level of risk. Because of the cost of acquiring new policyholders, these customers must be kept for at least 3-4 years to make them profitable. However, they could buy lower premiums more often. If the exchange rate a significant amount, customers are more likely to shop around for lower premiums.Therefore, GEICO strives to maintain its low prices and raise them in smaller quantities than necessary.

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