Why are there so many car insurance commercials? – Marketplace | CarTailz

This is just one of the stories in our “I’ve Always Wondered” series, in which we address all of your questions about the business world, no matter how big or small. Ever wondered if recycling is its worth it? Or like trademarks against stacking name brands? Watch more from the series here.

Listener Steve Arkowitz from Atascadero, California asks:

Why are there so many car insurance commercials on TV? We see far fewer ads for other types of insurance.

From the Geico gecko to Progressive’s Flo, auto insurance commercials have become so ubiquitous that the characters they feature are as recognizable as any celebrity.

No wonder when you look at the advertising budgets of the companies: The largest car insurance companies spend billions on advertising every year. In 2021 alone, Geico spent more than $2 billion; Progressive, $1.87 billion; Allstate Corp., $1.3 billion; and State Farm Mutual Automobile Insurance Co. and its affiliates, more than $1 billion, according to S&P Global Market Intelligence.

The high cost of television advertising can pose a barrier to companies selling other types of insurance. But the big auto insurers can spend billions because they make billions.

Increasing car insurance profits

Geico ads began to proliferate in the 2000s, with gimmicky but memorable spots featuring characters like the outraged caveman and parodies of reality shows and soap operas.

In 2005, Slate reported that auto accident rates had fallen along with insurance claims, leading to “a spike in profitability.” As a result, according to Ted Ward, vice president of Geico Marketing, insurers were “spending more than ever on ad purchases.”

A similar scenario unfolded early in the pandemic: as auto insurance claims tumbled, auto insurers made at least $29 billion in unexpected profits in 2020, according to the Consumer Federation of America.

A big reason auto insurers believe TV ads are worthwhile is the simple fact that most people who own a car need auto insurance, explained Pranav Jindal, an 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 for New Hampshire and Virginia.

“So the market is big,” Jindal said.

Compare that, he said, with home insurance. There are many people who rent instead of owning a house. Plus, while mortgage lenders require you to have home insurance, it’s not a legal requirement.

A lot of competitors

Another reason auto insurance companies feel it’s worth spending big bucks on advertising, according to Jindal, is that auto insurance prices can be variable, making it easier for drivers to shop around for lower rates. “You can price based on risk. And different companies assess risks differently. That’s why we see so much price volatility,” Jindal said.

How often you drive, your driving habits, and your age, among other factors, all play into the cost of your auto insurance. And companies may place different importance on some of these factors compared to their competitors.

“So that means that at any point in time when you look up the quotes from two different companies, those quotes can be very different for identical insurance or identical coverage,” Jindal said.

Jindal said that’s why Geico might advertise that you could save 15% or more on auto insurance, or companies might say you could save an average of $300 to $400.

“Everyone save that much? No not at all. But there might be a part that could save that much,” Jindal said. “So if there’s that much 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 when his wife moved to the United States from India, some insurance companies made combined offers of between $2,000 and $4,000 for the two for six months. (Immigrants typically don’t have a driver’s license, so they typically pay a higher price, according to AutoInsurance.org.)

But an insurance company, recognizing that his wife had been driving for 15 years, put it at around $600 to $700.

“The offers are very different and because there are so many differences, companies want to advertise. They want consumers to know there is value in searching,” Jindal said.

Inflation means smaller advertising budgets

But we could see fewer ads going forward — record-high inflation rates are hitting a variety of industries — including auto insurance companies.

Geico, State Farm, and Progressive have reduced spending year after year. According to S&P Global Market Intelligence, Geico cut its advertising budget by 4.4% between 2020 and 2021, while Ad Age recently reported that the company “made significant headcount reductions in its marketing department.”

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