Thursday, September 17, 2009

No Returning to GEICO

This is a consumer alert for Americans considering GEICO after watching those brilliant and funny ads featuring the gecko lizard and cavemen.

We carried GEICO auto insurance for several years till they heavily jacked up rates when we changed one of our cars for a new one. That's apparently a common way for insurers to reward loyal customers that they figure will stick around no matter what. So we switched to AllState that offered much lower rates.

If we do want to switch again some time we'll probably steer clear of GEICO even if they offer low premium rates. This is because of their ineptness and questionable practices that we experienced at first hand. Some instances:
  • Our car driven by daughter Sheena was lightly hit in the rear side by a car jumping a red light. That other driver was deemed at fault and ticketed by the investigating police officer. We reported the incident to GEICO and were assured this wouldn't reflect adversely on our record. The operator advised us to let GEICO fix our car in their own workshop and they'd recover expenses from the other driver's insurer. The car was repaired all right at a cost of $700. We then received a letter that GEICO had decided not to pursue the claim with the other insurer as the amount involved was too small and billed us the deductible of $100. Years later we learned that GEICO had without our knowledge recorded this claim in the insurers' common database, showing our daughter to be at fault. Why? Because this way we would get higher rate quotes from competing insurers.
  • GEICO has its claims adjusters who assess damages and then offer the claimant the choice of a cash settlement , or proceeding to a GEICO designated workshop for getting the repair done. The problem I saw is that adjusters typically offer a very low cash settlement, forcing the car owner to go to the designated workshop that vastly inflates the claim after the drop-off, which the GEICO adjuster then readily allows. The workshop obviously has a kickback arrangement with the adjuster. This is corruption remniscent of practices in a third world country. The inflated repair charges adversely affect the claims history of the policy holder. They also affect GEICO's bottom line since the amount paid out may be far higher than claimants would have agreed to receive in fairer settlements.
  • We saw a surprising number of clerical errors (e.g., in recording VINs, coverage and billing) in the policies issued. When I called to seek correction we'd typically get a lot of duplicate and contradictory mailings. It sometimes took multiple iterations for them to get things right, only to have the process repeated when even minor changes were required to be made.
GEICO is a subsidiary of Berkshire Hathaway which is founded by the legendary and admirable Warren Buffett. Improving GEICO's operational structure and execution to match its marketing and advertising creativity shouldn't be so hard. For example they can compile data on cost escalations for their designated and third party workshops that will help flag their crooked claims assessors / adjusters. They can track the numbers and cost of mailings and compare it to industry averages to improve efficiency, and also track the average number of customer calls made to resolve an issue. These measures are almost so easy that even a caveman can do it.

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