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Auditor Steve Arkowitz from Atascadero, California asks:
Why are there so many auto insurance commercials on TV? We see far fewer ads for other types of insurance.
From the gecko Geico to Flo to Progressive, car insurance ads have become so ubiquitous that the characters featured in them are as recognizable as any celebrity.
It’s no surprise when you look at corporate advertising budgets: The largest auto insurance companies spend billions each year on advertising. In 2021 alone, Geico spent over $2 billion; Progressive, $1.87 billion; Allstate Corp., $1.3 billion; and State Farm Mutual Automobile Insurance Co. and its subsidiaries, more than $1 billion, according to S&P Global Market Intelligence.
The high cost of television advertising can be a barrier for companies selling other types of insurance. But big auto insurance companies can spend billions because they make billions.
Skyrocketing car insurance profits
In 2005, Slate reported that auto accident rates had declined along with insurance claims, leading to “a peak of profitability”. As a result, insurers were “spending more than ever on ad buys,” according to Ted Ward, Geico’s vice president of marketing.
A similar scenario unfolded at the start of the pandemic: as auto insurance claims declined, auto insurers made windfall profits of at least $29 billion in 2020, according to the Consumer Federation of America.
A big reason car insurers think TV advertising is worth it is the simple fact that most people who have cars are required to have car insurance, explained Pranav Jindal, assistant professor of marketing at the University of North Carolina at Chapel Hill’s Kenan-Flagler Business School.
Every US state has minimum car insurance requirements, except New Hampshire and Virginia.
“So the market size is big,” Jindal said.
Compare that, he says, with home insurance. There are many people who rent instead of owning a house. Also, although mortgage lenders require you to have home insurance, it is not required by law.
Lots of competition
Another reason car insurance companies find it worth spending a lot of money on advertising, Jindal said, is because car insurance prices can be variable, allowing drivers easier to find lower fares. “They can price based on risk. And different companies assess risk differently. That’s why we see so much price variation,” Jindal said.
How often you drive, your driving record, and your age, among other factors, all play a role in the cost of your car insurance. And companies may place a different level of importance on some of these factors compared to their competitors.
“So that means that at any time, if you’re looking for quotes from two different companies, those quotes could be very different for the same insurance or the same coverage,” Jindal said.
Jindal said that’s why Geico might advertise you could save 15% or more on car insurance, or companies say you could save an average of $300 to $400.
“Does everyone save so much? Not at all. But there might be a part that could save so much,” Jindal said. “So if there are that many savings, then there’s a greater incentive for an auto insurance company to advertise and let consumers know about those savings.”
For example, Jindal said that when his wife moved to the United States from India, some insurance companies offered combined quotes for the two between $2,000 and $4,000 for six months. (Immigrants usually don’t have a driving record, so they usually pay a higher price, according to AutoInsurance.org,)
But an insurance company, recognizing that his wife had already been driving for 15 years, offered around $600-700.
“There’s a lot of variation in quotes, and because there’s a lot of variation, companies want to advertise. They want to let consumers know that it’s beneficial to search,” Jindal said.
Inflation means smaller advertising budgets
But we may see fewer announcements in the future – record inflation rates are hitting a wide range of industries – including car insurance companies.
Geico, State Farm and Progressive decreased the amount they spent year over year. S&P Global Market Intelligence says Geico cut its advertising budget by 4.4% between 2020 and 2021, while Ad Age recently reported that the company has “made significant staff reductions in its marketing department”.
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