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GEICO | Government Employees Insurance Company

Geico
The Government Employees Insurance Company (GEICO) is an auto insurance company. GEICO (pronounced) is a wholly owned subsidiary of Berkshire Hathaway that as of 2007 provided coverage for more than 10 million motor vehicles owned by more than 9 million policy holders. GEICO writes private passenger automobile insurance in all 50 U.S. states and the District of Columbia. Rather than relying on agents to sell policies, GEICO uses a direct-to-consumer sales model and puts funds saved from not paying agent commissions toward the purchase of television advertising, with several campaigns running simultaneously in national markets. Its mascot is a gecko with a Cockney accent.

GEICO was founded in 1936 by Leo Goodwin and his wife Lillian to provide auto insurance directly to federal government employees and their families. Goodwin had worked since 1925 for USAA, an insurer which specialized in insuring only military personnel; he decided to start his own company after rising as far as a civilian could go in USAA's military-dominated hierarchy. Based on Goodwin's experience at USAA, GEICO's original business model was predicated on the assumption that federal employees as a group would constitute a less risky and more financially stable pool of insureds, as opposed to the general public. Despite the presence of the word "government" in its name, GEICO has always been a private corporation.

The Goodwins relocated GEICO in 1937 to Washington, D.C. and reincorporated as a D.C. corporation after realizing that their business model would work best in the place with the highest concentration of federal employees.

An important figure in GEICO's history is David Lloyd Kreeger, who became president of the company in 1964 and helped steer it into a major insurance enterprise. In 1948, he formed a group of investors who bought into GEICO right before it went public that year. He became senior vice president and general counsel of the company. Six years after becoming president of GEICO in 1964, he was named chairman and chief executive officer. He retained those titles until he retired in 1974. He continued as chairman of the executive committee until 1979, when he was named honorary chairman. Intriguingly, the GEICO web site avoids any mention of Kreeger.

In 1973, under Kreeger's leadership, GEICO began to insure the general public, after real-time access to computerized driving records became available throughout the United States, and it was briefly the fifth-largest U.S. auto insurer. By 1975, it was clear that GEICO had expanded far too rapidly (during the 1973–75 recession) when it reported a $126.5 million loss. To prevent GEICO from collapsing, a consortium of 27 insurance companies agreed to take over a quarter of its policies, and it was forced to issue a stock offering (thus diluting existing stockholders) to raise money to pay claims. It took five years (during which the company shrank significantly) and a massive reorganization to set GEICO on the path to recovery.

Besides auto insurance, GEICO also offered other types of insurance during its history. From 1949 to 1981, GEICO's sister company, the Government Employees Life Insurance Company (GELICO), offered life insurance, and from 1960 to 1995, GEICO offered homeowner's insurance. Although GEICO has since focused on its core competency of auto insurance, selling GELICO to Legal & General, it uses its established direct sales infrastructure to market homeowner's insurance and many other types of insurance underwritten by other insurance companies.

In 1996, after many years as a publicly traded firm, GEICO became a wholly owned subsidiary of Berkshire Hathaway.

GEICO generally deals directly with consumers via the telephone and the Internet, freeing up capital that would otherwise be spent on employing insurance agents in the field. The company does have many offices across the country for those consumers who prefer to deal with an agent. The company is now the third largest direct writer of private auto insurance in the United States.

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