Flo vs. Gecko: Do ‘ad wars’ mean lower auto insurance rates?
Practically every hour of every day, Progressive’s perky pitchwoman Flo and GEICO’s quirky Gecko duke it out on TV screens and computer screens in competition for your dough. At stake: Roughly $160 billion in annual auto insurance premiums.
To capture your premium dollars, insurance companies spend massive amounts of money on advertising. During the first nine months of 2010, auto insurance companies forked over more than $1.14 billion for ads, according to The Nielsen Co. That’s up 36 percent from the same period in 2009 — outpacing advertisers in nearly every other industry.
“Our goal is to be consumers’ number one choice for car insurance,” Progressive spokeswoman Leah Knapp says. “When people shop for insurance, they only quote a handful of carriers. Having a well-known brand puts you on the top of consumers’ list of companies they would consider when shopping for car insurance.”
|In the fight for your auto insurance dollars, Progressive, GEICO and their rivals spent more than $1 billion on advertising in the first nine months of 2010.|
However, even though Progressive and its auto insurance rivals battle fiercely for policyholders, consumer advocates claim that policyholders don’t necessarily enjoy lower rates as a result of the marketing land populated by Progressive’s Flo, GEICO’s Gecko, Allstate’s Mr. Mayhem and other characters.
“We’re having ad wars instead of rate wars,” says Doug Heller, executive director of Consumer Watchdog, a consumer advocacy group in Los Angeles. “(Insurers) don’t compete on price, but on name recognition. They compete for our attention with cavemen and lizards rather than lower premiums.”
Insurers: ‘Significant’ price competition
David Snyder, vice president of the American Insurance Association, a trade group for auto insurers and other insurance companies, takes issue with Heller’s remarks. He says auto insurers are among the most vigorous competitors in any U.S. industry, with the bulk of auto insurance ads emphasizing cost savings for consumers.
“There is no support for his comments,” Snyder says of Heller. “In fact, the evidence is all to the contrary.”
Snyder points out consumers have a whole host of tools available to find low auto insurance rates, including comparison shopping websites, independent insurance agents and insurance regulators’ websites. There’s “very significant price competition,” he says, “and very significant information available to the public about different insurance prices.”
In an October conference call with Wall Street analysts, Allstate CEO Thomas Wilson said the company’s spending on ads had risen “because we felt that was worthwhile to take the risk and see what kind of growth we get. As long as we keep getting growth out of it, we’ll keep doing it. When we think it’s not economic, then we won’t do it.”
Robert Hunter, director of insurance at the Consumer Federation of America, says auto insurance rates have held steady or fallen slightly, even though the number of claims has decreased about 10 percent during the past three years.
“The economic crisis has been a windfall for auto insurance companies,” Hunter says. “They’re really raking it in.”
Policyholders with low credit scores typically pay more for auto insurance; many consumers’ credit scores have deteriorated during the economic slump. Meanwhile, Hunter points out, auto insurance claims have decreased in number. To save money, policyholders are driving fewer miles, meaning fewer accidents and fewer claims.
|From July through September 2010 alone, auto insurance companies spent nearly $375 million on advertising, according to The Nielsen Co.|
As a result, auto insurance companies are paying out less money in claims, so they have more cash to spend on advertising. In nearly every state, auto insurers can pass along their increased ad costs to policyholders. California is the only state that prohibits auto insurers from shifting such costs to consumers above a certain level.
“California is good and everyone else is bad,” Hunter says. “Nobody else controls costs in any way.”
Auto insurance ads motivate consumers
Nonetheless, auto insurance advertising does seem to be doing its job.
A consumer survey conducted in August 2010 by Market Force Information Inc. found that more than three out of four respondents had seen an auto insurance ad in the previous two months, with 93 percent reporting they’d spotted the ad on TV. One-fourth of the survey participants who said they’d considered switching to a different auto insurance company had checked out another provider based on an ad they’d seen.
In fact, about three-fourths of the people who had switched auto insurance companies were lured by better rates, according to the Market Force Information survey. Advertising awareness appeared to be a “large motivator” among consumers who thought about changing providers, Market Force Information says.
Given the uncertain economic climate, Sallie Hirsch, senior vice president of research at Nielsen, is reluctant to predict whether auto insurers’ ad spending — through TV, radio and other media outlets — will accelerate in 2011 like it did in 2010.
“From an economic standpoint, if insurers are spending more on advertising, their expenses are increasing and, therefore, they would need to either grow their customer base or be forced to increase the price they charge consumers to compensate,” says Jeremy Bowler, senior director of the global insurance practice at J.D. Power and Associates.
Want to watch some of your favorite auto insurance ads? We’ve compiled links to YouTube channels where you can watch Flo, the Gecko and other characters make their sales pitches.
“That said, the big advertisers like GEICO and Progressive have been growing. The perception that customers are saving money is really driven by the fact that many shoppers find a new insurer with more competitive rates than their old company. Often, the customers who switch insurers had been with their previous insurance company for multiple years, over which time their needs or circumstances may have changed, prompting different insurance policy needs.”
Online advertising taking off
Jaimie Pickles, president of insurance consulting firm Canal Partner, isn’t hesitant to forecast that auto insurers will bump up their online ad spending in 2011. And by 2012, their online ad budgets will have doubled from 2009, Pickles estimates. In 2009, auto insurance companies spent $591 million on online marketing. That’s nearly double the number from the previous year.
The nation’s top five auto insurers — State Farm, Allstate, Berkshire Hathaway (GEICO), Progressive and Zurich (Farmers) — all have a strong presence on the web.
Pickles applauds GEICO and Progressive for their successful online marketing campaigns.
“Part of that is their marketing and advertising is very good, and it resonates with consumers,” Pickles says. “And part of it is that their websites are very consumer-oriented. They have unique features and benefits for consumers who are buying insurance, and for consumers who have policies with them. Progressive has the ‘Name Your Price’ feature, and GEICO has a streamlined quoting process.”
Even if an upswing in auto insurance advertising may or may not equate to better rates, consumers still can lower their premiums if they shop around. Hunter, the Consumer Federation of America executive, recommends that drivers not only compare companies’ rates but their reputations. He suggests checking your state’s insurance department website as well as the National Association of Insurance Commissioners’ website for complaints against insurance companies.
“You can’t test drive an insurance policy, so people often buy based on price,” Heller says. “But you also want to check the quality of the company. When you need (your insurance company) to be there, you need confidence they will be.”
–Louise Witt and John Egan