Unless you have lived under a rock for the last decade or so, you are well aware that auto insurance companies are aggressively seeking your business for insurance on your car. In fact this industry has become one of the biggest spenders when it comes to marketing and advertising budgets. Since Geico began its campaign pushing the slogan “15 minutes can save you up to 15% on car insurance”, the other large auto insurers have been scrambling to cater to the price-centric population as well. However, is this marketing strategy focused on price really effective in gaining new customers or should these insurers spend more time and money focusing on better service?
Insurance Price Wars Cost Billions Each Year
McKinsey & Company completed the 2012 U.S. Auto Insurance Buyer Survey which revealed the staggering amount of money that the auto insurance industry spends on marketing each year, targeting mostly new customers based on price comparison. In 2011, the personal lines insurance carriers spent almost $6 billion in advertising, with four of the largest insurance brands making the top 50 list of marketing expenditure for all companies in the U.S. Geico, the biggest spender, even beat out McDonald’s in marketing dollars. The other three, Progressive, Allstate and State Farm all spent more than other big marketing brands such as Coca-Cola, Apple and Visa.
Since 2002, the amount of money spent on advertising in the personal insurance carrier industry has tripled, yet not many gains have been made within many of these companies. Over half the money spent by the entire industry in the last decade, $19 billion, was by carriers that have not seen an increase in market share. This may be due to the fact that only 30% of auto insurance buyers are overly concerned with price, yet this is the faction of the public that advertising is geared toward.
The Need For More Focus On Retention And Customer Service
Oddly enough, considering the large amount of money spent on advertising for new customers, auto insurance policy holders generally stay with their carriers. In 2011, the industry had an impressive 91% retention rate, meaning few customers are actually switching carriers. However, this does not mean that they wont leave if they are offered a better price or feel their service is sub-parr. 18% of these retained customers are not necessarily truly loyal to the company they are with, they just have not had enough incentive to decide to leave.
Since 70% of the insurance customer base is not focused solely on price and tends to stay with their carriers long-term if they are satisfied, it would seem that auto insurance companies would spend more effort on trying to keep these customers satisfied. This comes with increased customer service, an efficient claim process and fair payments for claims. With some of these companies wasting $500 million a year in aggressive advertising toward carrier-hoppers only concerned with price, it seems that more money could be spent instead on improving their service. It may take a portion of these retained customers leaving for a company that invests in service instead of constantly trying to gain price-shopping consumers to change the way the industry spends their time and efforts.