In the last decade, the insurance industry has seen a lot of changes. This is especially true for the way that insurance is sold. Insurers are now among the most expensive advertisers in the United States, with Progressive at number 22 and Uncle Warren’s Geico ranked at number 5. Budweiser is the perennial TV spender at #25. Each insurer spent more than that. All this advertising is paying off, and last year Geico overtook Allstate as the second largest auto insurer in America.
It is no secret, that this deluge advertising has mainly focused on the price. This has convinced consumers that personal lines insurance has become a commodity and that the only thing to consider is the lowest possible price. McKinsey, Nomura Equity Research and other analysts have stated that insurance has become a commodity. We who are in the insurance industry know that this statement is not accurate. Personal lines insurance should not be purchased based on the price alone. We love the Chubb tagline, “Who insures me doesn’t really matter.” “Until it happens.”
Not only does it matter who you choose to insure you, but what is written in your contract, the limits, and how well you are protected. It also matters if your contract matches your personal situation and needs for protection. Bill Wilson’s article at Insurance Thought Leadership is a great example of a well-written and illustrated article by industry experts with more experience than we do. It explains in detail how cheap insurance can be as bad as no insurance in the event of a major loss. Bill Wilson points out that “consumers have been duped into thinking personal lines insurance is just a commodity with only a price difference.” “Nothing could be further away from the truth.” We don’t want to repeat those explanations, but we do want to suggest a wild idea that might just help prevent personal lines becoming more commoditized.
These articles are accurate, but they target the wrong audience. It is urgently needed to launch a marketing campaign that focuses on the insurance industry to show to the public why it is not a commodity. Bill and other experts have explained why insurance is not a commodity. However, we think we need to go beyond just asking insurance agents to tell their clients. Many of them are already trying hard to convince their customers to look past price. We need to focus on a public-facing marketing campaign.
Uncle Warren made it clear in his shareholder letter that he would spend as much money on marketing Geico’s growth as necessary, giving the Gecko a essentially limitless wallet. The Australian reptile is always talking about lower rates and customer service. He rarely talks about getting the right coverage.
Geico and Progressive, two insurers that focus on price, spend together around $1.6 billion a year in advertising. Simply put, traditional insurers that focus on service and coverage cannot compete with such a large advertising budget.
You can see that the massive spending has paid off. Geico is now the second largest insurer in the United States, up from the 6th place it held in 2001. Geico could surpass the top market share in the next decade if this trend continues. Progressive, a carrier that focuses on price, has nearly doubled its share of the market. The traditional companies, which focus on customer service, like the ones we have mentioned (except for Liberty Mutual who acquired Safeco in this period), all saw their market shares shrink. Geico and Progressive accounted for 9.5% of the market in 2001. In 2013, they had managed to double the market share to 18.7%.
Our crazy idea is to have a group traditional insurance companies that are focused on customer service and coverage form an alliance. They would then dedicate a large part of their marketing budgets into educating the public that insurance is about more than just price. We’d show them real stories and statistics that illustrate the true cost of cheap insurance.
Imagine that the three largest mutual insurance carriers, SF, Liberty Mutual, and Nationwide come together to form a marketing partnership and educate the public. We’ll tentatively name it the National Mutual Insurers Alliance. The three largest mutuals collectively spend $1.55 Billion on marketing each year, which is very close to the total expenditure of Geico and Progressive. The three companies cannot dedicate their entire budgets to this project. However, if they were to devote around 20% of the budget, or $310 million per year, then they could really make a difference to explain this important issue to consumers. They could then invite other regional mutuals as minor partners to join the effort.
Here’s a sample of a possible commercial (although we are sure that the actual marketers from the carriers will do a much better job):
The opening sequence features a couple of middle age. The legend beneath says “Mr. & Mrs. Jones.” This is not a dramatization.
Mrs. Jones: We had been insured since college by our Liberty agent. We had nothing against him. He was a good guy who always treated us well. In 2008, Gary lost his job and we had a tight budget. We had also seen hundreds of ads about cheap insurance. So, after we got rid of cable we called for a quote. “We were thrilled when they saved us over $400 per year.”
She crackles her voice as she speaks.
Mrs. Jones said: “We had no idea the policy was so much different. We never even speed. We never imagined we’d have a major accident.
The video fades into a picture of an actual car that was involved in a rear-end collision. Mrs. Jones rear-ended the small coupe with her SUV. The bumpers have been removed, but there is not much else damage.
Mr. Jones: At first, we believed everything was fine. The woman in the other vehicle was a bit sore but said that she would be okay. She was taken by ambulance to the hospital as a precaution but was released that same day. We thought that we were covered by our insurance. “We found out that our state-minimum liability coverage was not enough to cover her medical expenses. Her lawyer informed us a few weeks later.”
Mrs. Jones: The accident was litigated in court and the jury awarded $150,000 to her. Our state’s minimum liability was $25,000 so our new insurance paid that amount. Our house was destroyed and we have to pay $125,000 in liens until the remainder is paid. It has destroyed our life. We had no idea. “We thought we would get the same coverage as before.”
Then, the screen fades out to a black background with “Mutual Insurers Alliance”, a memorable slogan and the logos for Nationwide, SF and Liberty Mutual, as primary sponsors. Any other mutuals can be minor sponsors.
A commercial might show insurance experts explaining in plain language the costs of claims, and how assets can be at risk when people don’t have coverage that is tailored to their specific needs. These campaigns are not limited to the property and casualty sector. We can all think about examples from the medical sector, like Susan G. Komen For The Cure and the American Heart Association. Life Happens, a campaign created by the national insurance producer associations to promote life insurance awareness, is a good example of this. They sponsor Life Insurance Awareness Month each year.
We don’t say that this is the best solution. But we do believe that it is right for consumers, and someone has to take action. The big mutuals, we believe, are the best positioned to make this happen. However, any combination of coverage- and service-focused insurers willing to set aside decades of competition with one another could do it.