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UPDATED: Jul 25, 2017
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Auto insurance companies are constantly battling competitors to earn a large piece of the market share pie.
To do this, the top players in the industry are shelling out billion of dollars. According to statistics released by JD Power and Associates, the leading carriers in a battle to earn market share are spending more than $5.7 billion on annual marketing campaigns.
As you’ll notice when you compare premiums, these budgets are spent on a mix of different tactics on platforms like social media, TV, print, email and more. Why is so much of the focus on TV commercials?
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Understanding How the Insurance Industry is Regulated
As with any type of financial industry, the insurance industry is one that requires a lot of regulation.
When the McCarran-Ferguson Act was passed back in 1945, the responsibility for regulating the industry was passed from the hands of the Federal government to the hands of state officials.
There are several benefits to having states regulate insurance. Not only does it keep the costs lower, it also ensures that there is greater competition for insurers of all size within the state limits.
Here are some of the ways that the State Department of Insurance will regulate what goes on in the insurance industry:
- Maintaining insurer solvency to prevent bankruptcy
- Protecting consumers against bad faith tactics
- Regulating premiums to prevent predatory rate filings
- Helping high-risk drivers get access to insurance
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How do insurance companies compete for business in the state?
It wouldn’t really be a competitive market if every insurer in the industry charged the same premium. That’s why it’s up to the insurer to charge an affordable rate that attracts vehicle owners.
That’s why it’s up to the insurer to charge an affordable rate that attracts vehicle owners.
Insurance companies set their own unique rates but must also get approval for their rates by filing them with their Department of Insurance.
Before the company is able to file rates, they must put a focus on rate making.
Rate making is all about assessing the marketplace, projecting risk, budgeting for operational expenses, and allotting money to be put in reserves.
How do insurance companies price themselves out of some markets?
Marketing is a business practice that’s all about targeting a specific demographic. Companies that are calculating their base rates and coming up with a future business plan need to decide which market demographic that they want to insure.
It’s very difficult for a company to be profitable in high-risk, standard and top-tier markets.
During rate making, companies will decide which markets are the most profitable as far as projections are concerned.
When doing this, companies will focus on a category of the market.
They will then keep rates higher than the competition for the less desirable niche and more competitive for the desirable one. It’s not easy for a company to be priced best in all categories.
The Battle for Market Share
Market share is defined as the percentage of the total sales that are earned by a specific carrier in a single industry over a period of time.
In the insurance marketplace, market share increase and decrease regularly.
There are some major players in the marketplace that are always on the top of the list. That’s because some companies have been selling products for decades and others have huge marketing budgets.
Here’s a breakdown of how the carriers stack up in the most recent rankings:
- 1. State Farm
- 2. Liberty Mutual
- 3. Allstate Corportation
- 4. Berkshire Hathaway
- 5. Travelers Companies
- 6. Progressive Corportation
- 7. Nationwide Mutual Group
- 8. American International Group
- 9. Farmers Insurance Group
- 10. USAA Insurance Group
What are the most popular marketing tactics used by insurance companies?
There are all types of marketing strategies that have proven to work in the insurance industry. The strategy and type of tactics that a company uses depend on the niche being targeted.
This is why insurance companies spend millions employing marketing experts to run data and come up with strategy.
If you pay attention to it, you might notice that you’ve been exposed to insurance ads on several different platforms.
This is so that the marketing message can be communicated in a number of different ways to different market segments.
Here are some popular tactics:
- Social Media Marketing
- Email marketing
- Marketing through comparison site affiliates
- Newspaper Ads
- Sports and stadium sponsorships
- TV ads
Why is TV such a popular medium for insurance marketing?
TV might be an expensive platform to advertise on, but for companies that have the resources, television commercials still make the most sense.
If you’re curious as to why companies are spending millions on TV campaigns on a product as boring as auto insurance, there’s a number of correct answers.
Here are the most popular reasons:
- Since about 50 percent of consumers are insured with a top writer of insurance, having a strong brand is key
- The industry is changing and buying insurance doesn’t require an agent. Because of this commercials are able to direct buyers online for convenience
- TV ads can take a tone that attracts a large audience (humor, save money, fear)
- TV ads can reach all types of demographics based on the channel you choose, the day you run an ad, and time the commercial is played
If you’d like to see if these carriers are really as competitive as they claim, use a comparison tool now and see what you’ll pay if you switch.
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