Are Auto Insurers Spending Too Much to Court Customers?

Auto insurers’ spending on marketing has increased substantially over the past 10 years, but a report by the consulting firm McKinsey questions whether the industry is spending too much to attract too few customers.

In a report released yesterday titled, “Beyond Price: The Rise of Customer-Centric Marketing in Insurance,” the consulting group says that over the past 10 years, the marketing spend by U.S. personal-lines insurers rose from $1.7 billion to $5.9 billion in 2011.

All of that spending, the report says, is targeted at just 30 percent of auto-insurance buyers who are most price-sensitive and least loyal.

“For a small number of individual carriers, the marketing arms race has yielded gains in market share,” the report says. “These winners are likely to continue to thrive in the current marketing paradigm. But the industry as a whole is treading water; some carriers are spending heavily for broad brand recognition and have little to show for it.”

Based on the findings from the McKinsey Auto Insurance Buyer Survey in June of 2012, the report says the industry retention rate was over 90 percent in 2011.

Tanguy Catlin, principal with McKinsey, and one of the authors of the report, says the main purpose of the study is to raise the issue with insurers and begin a conversation with executives about their spending and expectations for growth.

Catlin acknowledges that the marketing spend has produced “significant value” for the top-five U.S. insurers, as these brands are the first to come to mind among consumers when they go shopping for insurance.

Among those consumers who do choose to look for a new carrier, 40 percent utilize digital and social media to influence their buying decisions, up from just 10 percent in 1998.

Catlin says instead of trying to beat the major insurers at their own spending game, smaller carriers should concentrate their efforts on niche opportunities.

“We strongly believe that there are other needs out in the marketplace that are not being addressed and that is a bigger opportunity for insurers,” says Catlin.

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