U.S. auto insurers aren’t targeting the right consumers, despite high marketing spend: report

The auto insurance industry in the United States is one of the most aggressive in terms of marketing spend, but it may not be having the desired impact, notes a new report from McKinsey and Co.

Over the past nine years, U.S. auto insurers have tripled their marketing spend nearly $6 billion annually, with some companies on par with corporate giants like Coke and Nike, the report, “Beyond Price: The Rise of Customer-Centric Marketing in Insurance” suggests. Insurance premiums, though, have remained stagnant.

More than half of the marketing dollars spent on auto insurance in the past decade came from carriers that didn’t gain share, McKinsey suggests.  “Only a few carriers will be able to sustain the high-octane advertising barrage that characterizes today’s market,” the report says.

“The vast majority of this marketing spend has been targeted at the 30% of auto insurance buyers who are most price-sensitive and least loyal, ignoring the other 70% of the market,” the report suggest, based on McKinsey’s U.S. Auto Buyer Survey and numerous interviews with marketing executives.

That 70% tends not to respond as well to marketing messages based solely on price, the report suggests. They tend to be loyal to their carriers and may not be shopping around for another insurer.

Retention of an auto insurer is around 90%, but most marketing spending is focused on acquiring customers, the report notes. “Ironically, marketing messages based on price are driving more customers to view auto insurance as a commodity,” it says.

“The combination of higher acquisition cost and lower retention for frequent shoppers drives up the relative value of retaining existing policyholders.

To grow profitably, McKinsey asserts that auto insurers should focus on the following:

• “Insurers need to develop a far more sophisticated view of the different segments of insurance shoppers and to customize their approach to the needs and behaviors of those segments.
• They must also increase their focus on retaining their existing policyholders.
• Finally, they must dramatically improve their marketing organizations to ensure an adequate return on their marketing spend and to deliver on their brand promise.”