The past decade has seen a lot of changes in the insurance industry, and specifically the way that insurance is sold. Today, insurers are among the most prominent spending advertisers in America. Progressive is at #22, and Uncle Warren’s Geico is at #5. Individually, each of these insurers spent more advertising than Budweiser (the perennial TV spender) who is #25. All this advertising is paying off and Geico became the second largest auto insurer in the United States last year, surpassing Allstate.
The advertising tsunami has primarily focused on price. It is not surprising that the average consumer has come to believe that personal lines insurance is a commodity. Finding the lowest price is all that matters. McKinsey Equity Research and Nomura Equity Research both declared that insurance is now a commodity. We know this is false, as those of us who work within the industry are well aware. Personal lines insurance is by no means a commodity to be purchased solely on the basis of price. We love Chubb’s slogan “Who insures me doesn’t matter.” It won’t happen unless it does.
It doesn’t just matter who you have insured, it’s also about what your insurance contract says, your limits, how effective it is protecting you and, most importantly, if the contract matches your personal needs and circumstances. Many great articles have been published in the industry press, including this one by Bill Wilson from Insurance Thought Leadership. It explains in detail and gives examples of how insurance can be cheaper than insurance when there is a big loss. Bill points out that consumers are being deceived into believing personal lines insurance is a commodity. The only difference between the two is price. It is impossible to believe that this could be true. We are not trying to duplicate those explanations, but we do have a crazy idea that might save our personal lines from being further commoditized.
Although the articles above contain the correct information, they target the wrong audience. A concentrated industry marketing campaign is needed to show the public that insurance is not a commodity. While we agree with Bill and the other experts who have demonstrated why insurance isn’t a commodity we feel that we need to do more than simply get insurance agents to explain it to customers. Many of them are already trying to convince customers to look beyond price. A concentrated marketing campaign must be directed at the public.
In his shareholder letters, Uncle Warren made it clear that he will spend any amount necessary to market Geico in order for the company’s growth to continue – giving the Gecko a virtually unlimited budget. This adorable reptile from Australia spends most of his time talking about lower rates. However, he does occasionally talk about customer service and having the right coverage.
Progressive and Geico, both price-focused insurers, spend approximately $1.6 billion a year on advertising. Simply put, no other traditional coverage and service-focused insurers can match that level of spending.
The vast amount of spending is paying off, as you can see. Geico is now the 2nd largest market share, having been the 6th in 2001. Geico could easily surpass the top spot in the next ten years if this trend continues. Progressive, another price-focused carrier, has nearly doubled its market share. Traditional customer service-focused companies like Liberty Mutual and Safeco have seen their market shares shrink. Progressive and Geico together held 9.5% of the market share in 2001. They have just managed to almost double that market share to 18.7% by 2013.
Our crazy idea is: A group of traditional, customer-service and coverage-focused insurance carriers should form an alliance. They would then dedicate a substantial portion of their marketing budget to explaining to people that insurance is about more than just price. We will tell them stories from real people as well as statistics about the true cost of low priced insurance.
Imagine three of the largest mutual insurance companies, Nationwide, Liberty Mutual, and SF coming together to form a marketing alliance to educate people. Let’s call it the National Mutual Insurers Alliance. The three largest mutuals collectively spend $1.55 Billion per year on marketing. This is close to Progressive and Geico’s combined spend. Although the companies cannot dedicate all of their marketing budgets to this project, they can devote 20%, which amounts to around $310 million per year, to help explain this important issue to consumers. They could also invite smaller regional mutuals into the fray to be minority partners.
This is an example of how commercials could look (although we are sure that the actual marketers at carriers can do better).
The opening sequence depicts a couple in their middle years. The legend below says, “Mr. and Mrs. Jones.” This is not a dramatization.
Mrs. Jones: “We were insured by our local Liberty agent from college. He was great and treated us well. We had nothing to do with him. In 2008, Gary lost his job and our budget was tight. We had seen hundreds upon hundreds of ads about insurance. So, right after we got rid of cable, they called us for a quote. They saved us $400 per year, which was very satisfying.
As she continues, her voice crackles.
Mrs. Jones: We didn’t know that the policy was so unique. We never even speed. “We never imagined that we would ever be in a major accident.”
The video then fades to show a real photo of the car that was involved in a rear-end collision. Mrs. Jones’ SUV was rear-ended by a small coupe. There isn’t much damage to the bumpers, but they are gone.
Mr. Jones: At first, everything seemed fine. Although the woman driving the other vehicle was sore, she assured us that she would be fine. As a precaution, she was taken by ambulance to the hospital. She was released that day. We thought we had complete coverage because we had insurance. Her lawyer contacted us a few days later and informed us that we had only state minimum liability coverage. We were also paying more for her medical bills.
Mrs. Jones: The accident was finally settled in court and the jury awarded Mrs. Jones $150,000. Our state had a minimum liability of $25,000 so that was all we paid for by our new insurance company. We lost our home and now have liens against our income until the remaining $125,000 is paid. It has completely destroyed our lives. It was all completely unexpected. We believed we were receiving the same coverage as before.
It fades to a black screen at the end. The logos of Nationwide and SF as primary sponsors and Liberty Mutual as minor sponsors are displayed.
Another commercial might feature insurance experts speaking in layman’s language about the cost and risks of claims. These types of campaigns are not only available in the property and casualty insurance industry. Many of these campaigns are managed by non profit organizations. We can all think about examples in the medical sector, such as Susan G. Komen For the Cure and the American Heart Association. Life Happens, which was established by national insurance producers to increase awareness about life insurance, is closer to our industry. They sponsor Life Insurance Awareness Month every January.
While we don’t believe this is the best solution, it is what is right for consumers. While we believe that the major mutuals are the best positioned to do this, it is possible to find other coverage-focused insurers willing to sacrifice their years of competition to keep personal lines from becoming a commodity.
