While many dot-coms are tanking, auto insurers selling coverage over the Internet seem to be flourishing — in California anyway.

The Golden State appears to be the proving ground for budding Internet insurance operations, mainly because it is the largest insurance market in the nation, and two insurers — Esurance and Progressive — seem to be growing in the California sun. Todd Eyler, an insurance analyst at Cambridge, Mass.-based Forrester Research, says Esurance and Progressive are starting to take away business from old-line insurers.

Progressive sold approximately $86 million worth of auto insurance over the Internet in the first six months of this year, according to Leslie Kolleda, a company spokesperson, and Eyler projects Progressive's year-end figure for 2000 to be nearly $200 million, compared with year-end sales of about $67 million in 1999 and $10.6 million in 1998.

Kolleda would not comment on Eyler's estimate for 2000, nor would she say how many policies her company sells in California over the Internet. She does say, however, that Progressive sells more policies in California than in any other state.

Chris Henn, vice president of insurance operations at Esurance, could not disclose his company's market share (the number of policies his company sells) in California. However, he confirms California is one of Esurance's best markets. "It's not a surprise that we do well there because it's the largest state in the union and it was one of our first markets," Henn says. Esurance, which sells auto insurance in 24 states, was recently acquired by Folksamerica Reinsurance Co. for an undisclosed amount.

Eyler assures that Esurance has sold enough policies in California to be Progressive's main online competition. "If you saw the numbers, you'd be impressed," he says. Eyler would not disclose Esurance's policy sales figures.

Buying market share?

The apparent upswing in online car insurance purchasing in California might explain the downturn in traditional auto insurers' market share. According to California Department of Insurance (DOI) data, auto insurance liability market share for the two largest auto insurers in the state — State Farm Group and Zurich Insurance Group — declined from 1998 to 1999, both by about 0.8 percent. Progressive's market share increased by 0.3 percent. No data is available for Esurance, which sells policies only over the Internet.

State Farm recently implemented a 5 percent overall auto insurance rate reduction in California because it's losing business to Esurance and Progressive, Eyler says. "State Farm has $10 billion in capital and it wants to buy back [the business it has lost]." In 1998 and 1999, the company cut premiums on certain auto insurance coverages by 3 percent to 13.5 percent, according to rate filing data from the California DOI.

Dick Luedke, a spokesperson for State Farm, says the main reason his company reduces rates is because of its claims experience, but he acknowledges competition has something to do with it.

Farmers Insurance Exchange, Zurich's main seller of auto insurance, did not cut rates on personal auto insurance policies in 1998, 1999, or in the first six months of this year. Progressive cut its premium rates in 1998 by 5 percent to 8 percent, and then again in 1999 by 7 percent.

While the term "market force" might not be appropriate for online sellers of auto insurance in California, they have certainly turned up the heat on traditional insurers, Eyler says. "The market is certainly competitive these days, which is good for the customer," Luedke says. "We want what's good for the customer."