GEICO - History

History

GEICO was founded in 1936 by Leo Goodwin, Sr. and his wife Lillian to provide auto insurance directly to federal government employees and their families. Since 1925, Goodwin had worked 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 not affiliated with any government organization.

In 1937, the Goodwins relocated GEICO to Washington, D.C. and reincorporated the company 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 1965 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 1975. 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 1974, 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 45 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.

GEICO has also offered other types of insurance besides auto: homeowner's insurance from 1962 to 1996, a sister company, the Government Employees Life Insurance Company (GELICO), offered life insurance from 1975 to 1985. Although GEICO has since focused on its core auto insurance competency (selling GELICO to Legal & General), it uses its established direct sales infrastructure to market homeowner's and other types of insurance underwritten by other 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 telephone and internet through its own insurance agency, the GEICO Insurance Agency, thus freeing up capital that would otherwise be spent on employing insurance agents in the field, but it does have offices across the country for those consumers who prefer to deal with an agent. It is now the third largest direct writer of private auto insurance in the United States.