Easy question, simple answer: They don’t. The implication is that an agent ‘skims’ 15% commission off the top, as if (1) agents STILL get 15% commission on auto insurance, (2) agents don’t do anything to earn their meager commissions (like exposure analysis, product selection, claim advocacy, etc.), and (3) GEICO has no acquisition costs like advertising, sales and service staff salaries and benefits, etc.
The Florida Association of Insurance Agents (FAIA), the state affiliate of the Big “I”, has a blog area where agents can comment on staff blogs. Here is an agent’s response to a recent blog post:
“Highest per policy acquisition costs in the industry.” I certainly don’t put myself in the ranks of Warren Buffett and we clearly have a different target client than his Geico brand does, but it is very interesting to look at their recent financial reports.
Geico’s recent disclosure notes that it wrote 974,000 new policies last year. Sounds like they are hitting us hard. They also spent $1,400,000,000 on advertising last year. That’s 1.4 BILLION with a “B”.
If you do the math that is $1,437 per policy in acquisition costs just for advertising, not including other underwriting expenses. Now remember they have another 21 million customers on the books already. I wonder how they like subsidizing all those new policies….”
So, all you agents out there, how many of you get $1,437 commission on each auto policy? If that represents less than 15% of the premium dollar, then GEICO’s average auto premium would have to be about $9,600. Of course, that 15% claim might be a little off, perhaps by 100% or more?
Thirsty for more? Read my blog post from six months and a day ago: