Report: Marketing by Biggest Insurers Hasn’t Budged Customers

A boom in marketing expenditures over the past decade from the car insurance industry’s top spenders hasn’t paid dividends, according to a recent report that says industry emphasis on price-based advertising has proved ineffective on a vast segment of consumers.

The report, “Beyond Price: The Rise of Customer-centric Marketing in Insurance,” was released by consulting firm McKinsey & Co. this week. It is a collection of survey responses, citations from other reports on advertising in the industry, and interviews with marketing executives.

Insurers Spending More Than Ever

Advertising began focusing “relentlessly” on price starting about a decade ago after GEICO and Progressive, according to the report.

And according to marketing figures, “relentless” is certainly an apt description.

In 2011, the top five property/casualty insurers spent more than $5 billion on advertising, up from $4.5 billion the year before and nearly double the sum spent in 2005, according to a report from SNL Financial.

The industry’s top spenders put so many dollars into their marketing that they beat out some of the nation’s biggest companies in other industries. GEICO spends more on advertising than McDonald’s, Nike, or Coca-Cola, according to an AdAge report cited by McKinsey.

Marketing expenditures at Progressive, Allstate, and State Farm each outpace figures from Apple, Coca-Cola, and Visa.

According to McKinsey, the industry’s companies competed to spend more than the other with an “arms race” sort of logic.

Company-Hopping Still Relatively Low Among Consumers

But despite the billions spent on advertising, customers seem to be holding tight.

The McKinsey Auto Insurance Buyer Survey, which included responses from 16,000 consumers and was conducted in June 2012, showed that only 27 percent of consumers shopped for a new carrier in 2011.

Out of that 27 percent, about two-thirds ended up renewing with their existing carrier.

That means overall only 9 percent of consumers switched carriers in 2011, according to the survey.

Of the 73 percent who didn’t shop for a new carrier, a third renewed simply because shopping and switching would be too inconvenient.

Advertising Today and Tomorrow

McKinsey highlighted five big car insurers whose sizable marketing figures have helped them “pull away from the pack in terms of brand awareness”: GEICO, Allstate, State Farm, Progressive and Farmers.

But insurers who spend heavily on “broad brand recognition … have little to show for it,” according to the report, citing the stagnant state of overall premiums along with the virtually unchanged market share of carriers who spent more than half of the industry’s marketing dollars in the last decade.

Insurers focus their marketing efforts on price-minded consumers, who are the least loyal, but that segment represents only 30 percent of all consumers, according to the report.

Insurers target these consumers because they are the most likely to be comparing auto insurance rates and switching carriers more often. However, the value of that segment is grossly overestimated, according to the report, because it was composed of “serial shoppers [who] make the price-centric marketing message appear more successful than it actually is.”

Coverage providers have passed over marketing to the other consumers, the report said, who can be categorized into “distinct segments, each with differentiated needs, behaviors, and preferences.”

With profit margins and customer figures hardly budging in the face of skyrocketing marketing expenditures, the current leaders in advertising expenditures “are realizing that the narrow focus on price-sensitive shoppers will not deliver sustainable profit growth,” according to the report.

McKinsey said profit growth will depend on insurance companies pursuing a customer base outside of the price-centric consumer that has been traditionally valued by the industry in the past decade.

“Insurers need to develop a far more sophisticated view of the different segments of insurance shoppers,” the report said.

About Charles Nguyen
Charles Nguyen is an enterprising journalist who reported for and the Desert Dispatch and was the editor in chief of the Guardian (the twice-weekly newspaper at the University of California, San Diego) before coming to Online Auto Insurance News.

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