Insurance companies spend a lot on advertising. Probably too much. According to IAMagazine, in 2018 insurance companies spent 1-2% of their premium dollars advertising, or
$6.7 billion, … about 2.7% of all U.S. advertising spending, which is $240 billion. Overall, the advertising spend equates to about $20 per person in the U.S. or about $60 for the typical insurance-purchasing single person, couple or family.
You can probably name four or five different insurance company spokespersons off the top of your head right now, showing just how deep their advertising efforts have penetrated common knowledge. The top three in total spending should come as no surprise: Progressive, State Farm, and Geico; who together account for nearly half the total industry's spending, each topping $1billion in advertising for 2019.
Are you more likely to buy from the company who's commercials you like the best? OR are you just more likely to frequently shop your insurance based solely on price because you are constantly being told about other options?
The answer is probably somewhere in-between. It is important to note that not all advertising is meant to drive you to purchase something. A study from UCLA concluded,
"The ubiquity of the GEICO Gecko, Progressive’s Flo and Allstate’s Mayhem avatar did indeed pay off by increasing general brand awareness. But Tsai and Honka found that advertising had no impact on the brands consumers chose to get quotes from (“shopping”), nor in the final step of choosing which insurer to go with.
Informational ads that played up specific pricing and policy features accounted for 10 percent of ads. Non-informational ads that zeroed in on general brand awareness with a nod to entertainment/humor accounted for 30 percent of ads. The remaining 60 percent were a mix of informational and non-informational."
There is however an interesting trend developing with the top three spenders last year. All three (Progressive, State Farm, Geico) spent more on advertising in 2019 than they did in 2018 and all three had declining premium growth in 2019 compared to 2018.
Part of that is just scale, as a company grows in total size it takes more production to maintain steady % growth. I am not saying any of those companies are in any kind of distress, but the advertising war has bottom-line consequences.
So why does this matter to you?
It matter because you are paying those ads, it is built into the premium you pay every month. Inside each premium certain portions could be separated into operating expenses, selling and general expenses, underwriting expenses, agent commission, and profit among other things. A billion dollars is a lot of money that could have been spent elsewhere. It is awefully difficult for premiums to go down when expenses go up every year.
Not all insurance companies want to spend that much on advertising. They make the choice to use that money in different ways. Check out our blog from last year that talks a little more about how independent insurance agencies like ours fits in.