By Greg Isaacs on March 23rd, 2012 in Consumers
If you turn on the TV and catch a few minutes of commercials, you’ll likely see at least a few car insurance ads. Why is that? Why are those companies spending so much money selling a product as ostensibly boring as auto insurance? I venture some educated guesses below.
- No one likes to shop for auto insurance (or any insurance). Generally we only shop for it when we need insurance for the first time, and only shop again when we are upset with the company we buy it from. Plus, changing policies isn’t the easiest process, not to mention changing in the middle of the policy term. So on the rare occasions when we shop we do it before our annual or semi-annual renewal. Translation: even though we all need auto insurance, only a tiny number of us shopping are for it.
- All auto insurance companies are pretty much the same. Not really, but the larger ones tend to be very similar. The industry is very regulated, which encourages policies and coverages to follow comparable templates. Plus companies secretly want to be more alike than different. There are many reasons for this and the largest being adverse selection, which happens when a company has a characteristic of its insured population which results in more claims than the insured population in general. This might just sound like insurance mumbo jumbo, but the end result is most insurance companies are trying to attract the same customers.
- Half of us are insured with the same companies. More than 50% of American drivers are insured with the five largest auto insurance carriers, yet by some estimates there are more than 500 car insurance companies in the US. What do the five big companies have in common? They all either sell direct to the consumer or use captive agents. This means when a consumer gets a quote -- all that company can sell is its own policy, despite what some company’s commercials lead you to believe. I personally love to offer a diverse selection. This makes it easier for me to have an offering that fits my client’s individual needs and wants. If I can’t have a diverse product offering, what is the next best thing? A strong brand, hence the commercials.
Let’s add it all together. Most people don’t shop for insurance regularly. Insurance companies are very similar in what they offer, and they compete to insure the same customers. When they meet this customer they only have one product to offer them. So when customers finally do shop for insurance they do it with a couple brands that pop into their heads. Enter the need for strong branding. What’s the easiest and most effective way to do that?
Commercials, lots and lots and lots of commercials.