Sept. 15 (Bloomberg) -- Geico Corp. the insurer selling car coverage mostly through the Internet and telephone may attract fewer policyholders unless it changes the way it reaches customers the head of rival Allstate Corp.’s auto unit said.

Geico owned by Warren Buffett’sBerkshire Hathaway Inc. appears to have recognized the threat to its growth and is opening walk-in offices for drivers uncomfortable buying insurance without speaking to an agent said George Ruebenson president of Allstate’s home and auto unit. Allstate which ranks ahead of Geico as the second-largest auto insurer in the U.S. sells coverage primarily through agents.

Buffett whose Berkshire took full ownership of Geico in 1996 has touted the company’s so-called direct sales as a less expensive way to sell car insurance. Competitors including Allstate and Progressive Corp. say their most loyal -- and most profitable -- customers are older wealthier and more likely to use agents when they shop for coverage.

“Warren Buffett talks about his model revolutionizing everything yet he is opening storefronts” Ruebenson said in an interview at Allstate’s Northbrook Illinois headquarters. “If they want to keep growing at the same accelerated rate they have to now start to appeal to a different segment of the market. What we have been trying to do is focus on a segment of the market that likes an agent-centric model and is also very profitable for us.”

Consulting the Web

More than half of U.S. drivers shopping for coverage use the Internet for at least one price quote before they buy according to a survey this year by J.D. Power & Associates. Forty-five percent of shoppers bought their new policies through a direct channel up from 41 percent in 2007 the survey found. Buyers 55 and over were almost twice as likely to avoid insurance Web sites when shopping than those 18 to 34.

“When people talk about adding customers it is important to look at what kinds of customers” Ruebenson said. “They must be seeing some churning or problems with breaking into the more profitable segments or they wouldn’t be mirroring a lot of the things that we and the other agent-centric companies are doing.”

No. 1 State Farm Mutual Insurance Co. owned by its policyholders sells exclusively through agents. State Farm and Allstate also rank first and second in homeowners’ insurance a market in which Berkshire isn’t among the top 25. Ruebenson said auto customers who protect their residence with the same company are among the most loyal.

Allstate has counted at least 185 Geico storefronts in the U.S. Ruebenson said. Geico spokeswoman Chris Tasher didn’t return a call seeking an interview with Tony Nicely the car insurer’s chief executive officer. Buffett Berkshire’s chairman and CEO didn’t respond to a request for comment left with assistant Carrie Kizer.

Disgruntled Cavemen

“Geico has an appetite to sell to everybody” said Jeremy Bowler senior insurance director at J.D. Power. “The majority of people who switch their coverage still do that transaction with an agent and they’ve clearly come to the conclusion that there’s a need to have a physical presence.”

Geico typically leads insurers in annual advertising spending tracked by TNS Media Intelligence using its gecko mascot a cast of disgruntled cavemen and a flirting pile of cash to pitch itself as a low-cost car insurer. Years of ad spending established the company’s brand before consumers looked for ways to cut costs as the recession deepened Buffett told shareholders at Berkshire’s annual meeting in May.

‘Mosquitoes in a Nudist Camp’

Chevy Chase Maryland-based Geico broke sales records when it added 430000 policyholders in the first quarter compared with 235000 in the same period a year earlier. Buffett said in February that he and Nicely felt like “two hungry mosquitoes in a nudist camp” because of opportunities to increase sales at the unit. Geico’s growth slowed in the second quarter when the company increased its customer count by 166000.

Allstate lost 88000 customers in the first half of the year who had purchased its standard auto policy continuing a decline that began in the first quarter of 2008. Allstate is behind Bloomington Illinois-based State Farm in a 2008 ranking of policy sales compiled by the National Association of Insurance Commissioners. Geico passed Progressive last year to take the third spot.

Geico which says on its Web site it has about 9 million auto policyholders posted an underwriting profit of $259 million in the first six months of 2009. The underwriting figure includes results from motorcycles recreational vehicles and commercial fleets. Allstate’s auto coverage alone posted a $499 million profit on more than 18.5 million policies in that span.

Allstate’s premium revenue from direct sales has grown at a 41 percent annual rate since 2005 with 13 percent of new business coming from phone and Internet sales the company’s e4dvice president of investor relations Robert Block said in a presentation to investors last week. Half of all new customers start with a visit to the firm’s Web site; 87 percent of those complete the transaction with an Allstate agent Block said.

“What most people want to do especially with the Internet is get information” Ruebenson said. “But when they are ready to buy they want to talk to someone.”