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Updated June 2006 - Insurance and risk management is an immense global industry. In America alone, the insurance business employs about 2.5 million people. Personal lines comprise another vast sector of insurance. For example, private passenger automobile insurance will be about a $172 billion annual premium market in the U.S. for 2006. Homeowners insurance is about a $50 billion market. Property and Casualty insurance premiums will total about $450 billion in the U.S. for 2006.
Industry-wide Challenges
Recent regulatory changes have heightened competition within the insurance industry—an area in which competition has always been fierce. Competition will only become more intense. While there are tens of thousands of small insurance industry companies in the U.S. alone, the industry tends to be concentrated in a few hundred major companies, many of which enjoy brands that are household names. Source
It has been argued by some that insurance products are inherently complex
and that this restrains
competition among insurers (Hunter 2005). Indeed such complexity does
make it difficult both
for individuals and firms to understand fully what coverage they need,
what they are actually
buying, and whether they are buying from an insurer who has the reputation
and financial
wherewithal to pay their claims.
The role of insurance intermediaries is to help personal and business insurance buyers to understand and purchase insurance. Intermediaries help buyers search intelligently across insurers. In this way intermediaries stimulate competition in the insurance marketplace.
Insurance intermediaries are very large in number; currently there are
approximately 39,000
independent agencies and brokers in the United States. In 2003, the independent
intermediaries
(independent agents and brokers) controlled 67% of commercial lines property-casualty
business
and about 33% of personal lines business (see Table 4). Source
Insurance on the Internet
At the break of the new millennium, the Internet was already shaking up the insurance industry. Web sites are now operating as super insurance agents, offering more policy options from more insurance companies to more people at one time than any brick-and-mortar agency or flesh-and-blood agent.
The threat of losing sales to this new form of competition has prompted the technologically reticent insurance industry to begin using the Internet as a sales channel. A growing numbers of insurance companies have and will continue to spend money on full-scale e-commerce Web sites where consumers can research, apply for, and buy insurance without ever picking up the phone and talking to an agent.
Growing with Tenure
Researching and shopping for insurance online is grows as the industry and medium builds tenure. Forrester Research announced in fourth quarter 2005 that it expects online insurance shopping activities to increase. The firm examined responses from more than 60,000 US households to identify how online consumers use the Internet to research and apply for life insurance and auto insurance. Some of its findings:
- 16% of auto insurance applicants and 9% of life insurance applicants do all of their research and applying exclusively online
- Consumers who apply for auto insurance online are the most active researchers
- All online insurance activity increases as consumers get more experience going online
- Consumers who research online but apply offline, are the youngest and have the highest income
- Consumers who research and apply online are most likely to be in the South Atlantic region of the country
- The segment of consumers who don't use the Internet to research or apply contains the lowest percentage of Blacks, Asians, and Hispanics Source
How Consumers Research and Buy Home Insurance
As of 2005, the number of Europeans who have turned to the Net to research their home insurance policy has doubled since 2002. Online sales of home insurance policies are growing too. But customers' behavior varies widely by country — with the UK ahead of the rest of Europe in direct channel use. Elsewhere, most customers still rely on advice from professionals and buy face to face at bank branches, insurance agencies, or in their home. Source
Homeowners’ average expense for insurance rose 3.8 percent in 2004
and 7.3 percent in 2003. In 2005, the average expenditure is expected
to rise 2.5 percent, the smallest increase in six years.
64 percent of renters have no renters insurance.
- The most common misperception among renters is that they are covered by their landlord’s insurance.
- Lightning or hail is the most frequent peril leading homeowners to file an insurance claim.
- Property damage and theft claims accounted for 78 percent of all claims payments. Liability claims accounted for 6 percent.
- Twenty-seven percent of homeowners have made at least one claim on their home or condo policy in the past ten years.
Texas is the most expensive state for homeowners insurance and Wisconsin is the least expensive (by premium).
Information compiled by: Independent Insurance Agents & Brokers of America, Insurance Information Institute, and the Insurance Research Council Survey. Source
It's Not Easy Applying For Auto Insurance Online
Forrester applied its web site review methodology to five web sites in 2005. Nearly one-quarter of auto insurance buyers apply online. To help gauge the ability of insurance Web sites to meet the needs of these consumers, the firm applied a subset of Forrester's Web Site Review methodology to the Web sites of three US auto insurers (Allstate Insurance, Progressive Casualty Insurance, and State Farm Insurance) and two insurance aggregators (Insure.com and InsWeb).
The biggest issue: Sites don't present clear privacy and security policies when asking for personal information. Source
Marketing Trends in Insurance
Insurance companies are finding new ways to reach, influence and sell its products to consumers. Here are several examples of new and growing trends:
Insurers Led ‘05 Ad Spending
Thanks to several major hurricanes, 2005 wasn't the best year for insurance companies. It was, however, a bang-up year for the ad agencies that service them as ad spending for the category rose 31.3 percent.
Insurance was the biggest gainer in the top 15 categories of ad spenders in 2005, per Nielsen Monitor-Plus. The segment's rise eclipsed an overall jump of 7.4 percent in ad spending to $125.5 billion. A Nielsen representative said those numbers were not finalized and do not include online ad revenue, which stood at $9.6 billion in 2004, per PricewaterhouseCoopers.
Among the insurance category's biggest stars were Geico, which increased its spending by 51.3 percent to $470.1 million, and Progressive, whose spending jumped 45.3 percent to $354 million. Overall, category spending totaled $2.9 billion.
Ed Gold, director of media and sponsorship at State Farm, said companies like Geico and Progressive, which don't use agents, have accelerated spending in recent years because of opportunities online. "It's purely because of the Internet," he said. "It's creating a new opportunity for people to shop insurance." Gold said State Farm has "stepped up [advertising] a bit as the leader of the category." Source
More Dollars to Outdoor
“Outdoor advertising’s ability to effectively reach its core mobile audience while other media struggle to maintain audience share is one of the major reasons why more national brands are moving ad budgets to the outdoor medium,” said Stephen Freitas, chief marketing officer for OAAA, which is forecasting strong growth for the medium in 2006.
Across outdoor’s top 10 advertising categories, which account for more than 80 percent of the medium’s revenue, advertising was up in seven categories, including services and amusement (8.8 percent), media and advertising (6 percent), retail (11.7 percent), insurance and real estate (16.4 percent), financial (9.6 percent), restaurants (8.0 percent), and communications (31.8 percent). Only three categories spent slightly less: public transportation, hotels and restaurants decreased 2.7 percent; automotive dealers and services, down 2 percent; and automotive after-market, down 1.5 percent. Source
Man’s Best Friend Getting Insured
Currently valued at $88 million and chalking up growth of at least 45% annually, the pet insurance market clearly is a diamond in the rough; there are more than 136 million dogs and cats in this country—but less than 1% of them have insurance (versus 14% of dogs and 5% of cats in the U.K.).
A shift in the traditional pet insurance marketing paradigm from back-end (i.e., through veterinarian offices) to direct-to-consumer, the growing range of costlier healthcare options and prescription drugs for pets, and the pets-as-family trend assure the future of this market, which is currently controlled by just three companies, Veterinary Pet Insurance, Pethealth and Hartville.
It is likely, however, that mainstream insurance companies with much deeper pockets will be the ones to bring pet insurance into the national spotlight, hurrying it toward the billion-dollar mark in the next five years with nationally advertised adjunct programs.
Aflac Waddles Into Radio
Aflac plans to launch a national radio campaign in May 2006 with two 30-second spots targeting small business owners, the company said.
The spots will air on radio networks including ABC and CNN, as well as on various talk shows. The ads feature a brief audio "quack" by Aflac's iconic duck.
The Columbus, Ga.-based insurance company said it has bought time on the stations through the third quarter of this year, but could extend the campaign if results warrant it. The client spent $75 million on advertising last year, per Nielsen Monitor-Plus.
"We want to let people know that we are a partner in small business," said Al Johnson, vice president of branding and marketing at Aflac. "We think radio is the most effective way to reach small business owners." Source
Allstate Takes Stand
Motivated, it says, by the federal and state governments' spotty responses to recent hurricanes, Allstate is launching an unusual campaign seeking a public-private means to better prepare for disasters and limit some huge claims paid by insurers as a result.
Allstate began running ads in November 2005 in national newspapers, directing readers to ProtectingAmerica.org., a Website that advocates establishing federal and state catastrophe funds as well as a recovery system based on integrating public and private agencies, and consumer education, about disaster risks.
Allstate execs also will drive the talking points home in various appearances and in op-ed submissions to media outlets. Source
Anthem Targets 'Young Invincibles'
Anthem Blue Cross and Blue Shield in Nevada has broken the mold of traditional health insurance offerings by marketing unique health plans tailored to the lifestyle and attitudes of "young invincibles" (young adults ages 19 to 29).
There are approximately 400,000 uninsured Nevadans. Young adults between
the ages of 19 and 29 represent one of the largest and fastest-growing
segments of the population without health insurance --
nearly one-third are uninsured.
These “Tonik” health plans were designed by -- and for -- "young invincibles," as an effort to expand access to health care coverage for one of the fastest growing uninsured populations in the state and the country.
Curious "young invincibles" can visit and apply for Tonik online at http://www.tonikhealth.com or contact their independent agent. The site is intentionally easy to understand and navigate. There is minimal to no paperwork and if approved, an applicant can print out a custom- designed identification card. Source
Geico Ads Poised to Fend Off Allstate
Warren Buffett's Berkshire Hathaway Inc. is depending on a talking lizard to protect its biggest source of profits. Buffett paid $502 million to advertise his Geico Corp. car insurance unit last year and ``can't wait to spend more,'' he said in his annual letter to shareholders. Geico's mascot, a gecko with an English accent that pledges to undercut competitors' prices, helped boost its policy count 12 percent in 2005, as much as four times faster than competitors.
A 2005 online survey by Advertising Week found the gecko was the most popular icon, tied with the coffee industry's Juan Valdez. It was conceived at a lunch in a Los Angeles restaurant in 1999 when executives from Martin Agency, Geico's ad agency, were wrestling with the difficulty that customers had pronouncing 'Guy-ko,''' said Steve Bassett, a creative director at Martin.
"From where we sit, the Geico gecko has been and continues to be an absolute home run and a driver of success,'' said Matt Scheckner, executive director of Advertising Week in New York. Source
Nationwide Insurance Debuts at Super Bowl
Companies are banking on the fact that these Super Bowl commercials will stick in the memories of the game's 90 million viewers. Advertisers are paying a record $2.5 million for a single 30-second spot — up from $2.4 million last year. A 30-second prime-time spot during the Olympics costs about $700,000.
This year, the experts expected big things from little known company, Nationwide Insurance, which debuted with an interesting ad featuring Fabio.
"I can't believe it's him," said David Riley, who writes about advertising and marketing for Businessweek magazine. “If he does for this what he did for I Can't Believe It's Not Butter. … Insurance is something people don't want to think about. If you can get name awareness, which is a big part of what we're try to do, you've got a home run." Source
State Farm Extends Deal with USA Basketball
The “official insurance company of USA Basketball,” State Farm Insurance said in May 2006 it has signed a three-year marketing deal expanding its alliance with USA Basketball.
Under the new deal, State Farm will be the official sponsor of the men’s and women’s senior national teams and will have brand awareness in multiple media venues, including advertising, interactive fan tours and in-arena exposure. Financial terms were not disclosed.
“[This sponsorship] is a natural fit because USA Basketball’s commitment to excellence parallels State Farm’s commitment to excellence,” Mike Davidson, vice chairman and chief agency and marketing officer at State Farm in Bloomington, Ill., said in a statement. “The partnerships also provide another opportunity for us to reach sports fans, connecting them with our ‘good neighbor’ agents and helping them with their insurance, banking and mutual funds needs.” Source
State Farm Offers Roadside Assistance
Florida's Turnpike in 2005 signed a two-year, $850,000 contract with State Farm Insurance, which provides 14 roadside assistance trucks for use on the 309-mile turnpike. The trucks are painted in State Farm colors and have the insurance company's logo.
"State Farm felt it was good advertising for them and it provided a good service to motorists," said Joanne Hurley, a spokeswoman for Florida's Turnpike.
The State Farm contract covers half of the $1.7 million annual cost for the roadside assistance program, which provides free minor repairs and first aid to travelers. Source
Marketing Trends in Financial Services
Marketing in the financial services industry is a bit like trying to negotiate a Zen koan: How does a company get bigger and smaller at the same time?
Banks, investment banks, insurance companies, brokerages and research firms have begun to combine, divide and realign in the wake of the 1999 repeal of the Glass-Steagall Act of 1933 (a law that kept banks, securities firms and insurance companies from encroaching on each other's territories). At the same time, the industry is consolidating into fewer organizations with broad-often nationwide-reach.
Meanwhile, the collapse of the stock market has sent a flood of cash into the banking system, and underscored the individual's role in propping up the economy as a whole, and the financial industry in particular. Banks, which in the 1990s tried to charge for teller visits, now focus their marketing efforts on luring, rewarding and coddling retail customers.
The American Bankers Association's ABA Marketing Network reported that banks and S&Ls were expected to increase their marketing spending in 2002; that insurance companies were expected to hold the line on marketing expenditures or increase them slightly; and that investment management companies were likely to step up their efforts to get their message out.
Looking ahead, banks and financial institutions likely will expand their investment in ethnic markets – namely Hispanic - domestically and in certain markets overseas. In general, the ABA lists competition from financial and nonfinancial institutions, budget cuts, and portfolio growth and profitability as the top three challenges banking institution will face in the short term. Other issues include technological progress, such as finding a way to optimally integrate on- and offline banking, and customer relationship management.
Click here to read about a few specific marketing campaign examples. Source
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