The leading players in the insurance industry of the U.S. are State Farm, GEICO, Progressive, and Allstate insurance companies. With their increasing growth, such organizations have been gradually expanding their market shares thus setting stiff competition within the industry. State Farm is the leader in this field with a substantial share of the market. GEICO has the second largest market share followed closely by Allstate. Since State Farm is ahead of the other insurance firms with a huge gap, GEICO’s direct competitors are Allstate and Progressive companies.
The market position of any organization within this insurance industry is determined by several factors. Some of them include the demographics of the insurance customers, the level of technological advancement of each firm, and the firm’s marketing strategies. Therefore, GEICO can adopt various strategies as the countermeasures to the current competition. First, the company should focus on enhancing its technology to meet contemporary customers’ needs. Second, GEICO should adopt customer friendly policy terms so as to attract more customers into the firm. Besides, the company can diversify its insurance products as a way of spreading their risks as well as capturing a wider population. Finally, GEICO should make more investments in marketing to increase the company’s popularity (Leonhardt, & Johnston, 2015).
2. Economic Growth and Stability
GEICO being an auto insurance company is highly sensitive to the changes in the economy. A large part of the company’s policyholders is private car owners. The company is favored by economic growth and stability to a very large extent, which leads to an increase in the per capita income. This, in turn, enhances the disposable income of individuals in that state that can be further used to purchase the goods of ostentation such as luxurious cars. As a result, the amount of insurable items grows thus requiring a larger number of policies issued by the company. The increased per capita income provides the possibility of people taking insurance policies and pay high premium rates for these plans. Therefore, economic growth enhances the company’s revenue, which can be reflected in its development, while economic stability leads to the sustained growth of the enterprise.
On the other hand, economic downfall affects GEICO and other insurance companies adversely. In such situation, people tend to buy fewer insurance policies and some terminate their existing ones. In the case of economic recession, policyholders may not be in position to pay high premiums, and they may, therefore, shift to the affordable insurance companies. During this period, the government can intervene by implementing the rules that set the limit for the premiums of various policies in order to motivate the general public to maintain their policies. Such actions, however, lead to the decreased revenues of the insurance companies and the increased opportunity costs.
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3. Political Trends
The political environment is very dynamic and GEICO ought to follow the pace of the changing trends in it. The main political tendencies that are likely to affect GEICO are global instability and the rise of capitalism. Regulatory change is one of the drivers of global instability, thus GEICO is expected to be updated with all the changes and comply with the new laws in the insurance sector. The regulatory changes can increase the expenditure of the insurers which may be further translated in reduced revenues. Such situation may in turn lead to the changes in pricing of different products offered by the insurers that set the competition in the respective sector. GEICO’s actuaries should ensure that the company’s management is aware of all the new regulatory changes and direct the company in the compliance process (Hunter, & Katz, 2012). Another driver of global instability is political unrest. Political turmoil and the lack of global competitiveness hinder economic growth which affects the insurance industry adversely. The increased inflation due to corruption and the changes in political structures can destabilize the financial sector in such a way endangering GEICO’s prosperity. The state-driven rise of capitalism is a political trend that has an impact on GEICO as well. In this regards, the company is expected to track all the changes that come with the state-directed capitalism and align its operations with these changes.
4. Legal Issues
Legal matters can various influence on the performance of GEICO. The main way in which the legislative arm of the government can affect the insurance companies is through the formulation of the policies related to the respective industry. One of the policies that can be quite favorable for the automobile insurers including GEICO is the implementation of a statute that makes purchasing of the insurance covers for various auto-related perils a compulsory procedure for all car owners (Hunter & Katz, 2012). This measure can result in an increased number of policyholders for the insurance companies that aids in spreading the risk and, in turn, leads to more revenue gains. However, some regulations have adverse effects on GEICO and other insurers. For instance, the implementation of the laws that reduce the limit of the premiums that can be charged for various policies decreases the cash inflow in the company and consequently causes the reduced revenue. Another adverse policy is the implementation of the high tax rates for insurance businesses that also bring the increased expenditure. The net income of the company decreases with the increase in tax rates.
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5. Technological Advancements
GEICO appreciates the role of using the advanced technology to earn a competitive advantage in the highly competitive corporate world. The organization uses cutting-edge technologies in order to attract more clients. The most effective technology that GEICO applies in running its operations is the use of mobile applications to make the work of its customers easier. GEICO provides its policyholders with the mobile application that can be employed in the policies management (GEICO, 2016). The above involves paying premiums, seeking customer assistance, updating insurance claims, and accessing one’s digital ID card. The company’s actuaries use the same applications to value different policies as well as to assess the clients’ claims. GEICO’s IT team should conduct an extensive research to suggest more advanced technology than that of the company’s competitors. Such approach will give the company a competitive advantage and enhance various operations of the organization.
6. Sociocultural Trends
Different socio-cultural trends are likely to influence the performance of GEICO as an insurance company. For instance, there has been a trend of changing customers’ expectations whereby the clients are demanding more transparency and simplicity in performing business transactions. In regard to such tendency, there is a necessity for GEICO to be highly innovative to meet those expectations through customization. What is more, the customers are highly inclined to the usage of mobile technology in performing different transactions (Yoder, Rao, & Bajowala, 2012). Therefore, GEICO succeeded in integrating these devices in its operation through the introduction of a mobile application that allows the users to access all their company’s information and perform various actions related to their policies. The trend of increasing the popularity of social networks is another opportunity that GEICO should utilize in marketing (Leonhardt, & Johnston, 2015). The company must conduct its marketing activities in the main social networks such as Facebook whereby it will be able to capture numerous and diverse potential customers.