Insurance commercials are running everywhere, and they are especially catchy compared to other financial products. Even if you don’t have an insurance policy with Allstate, you’re probably familiar with Mayhem and his comic book perils. Jake from State Farm and Flo from Progressive are also common Halloween costumes.
It’s hard to go through half an hour of TV without hearing at least one plug for car insurance or home insurance (or both!). All these ads cost a lot of money. In 2023 alone, America’s four largest insurance companies paid a total of $3.7 billion to have their names on screen.
This begs the question, is that why the current premiums are so high?
The short answer is, no, your premiums are not artificially inflated by your flow salary. But it’s a little more complicated than that. To understand the relationship between insurance companies’ advertising budgets and price increases, the Bankrate Insurance editorial team examined the marketing budgets of four major U.S. insurance companies (Allstate, Geico, Progressive, and State Farm) and We spoke to experts about the role of advertising in the industry. industry.
How much do insurance companies spend on advertising?
Let’s start with the big question. How much do those TV ads really cost?According to data from S&P Global Market Intelligence, the four largest U.S. property and casualty insurers will each spend approximately $1 billion on total advertising by market share in 2023, leading to Of these, Progressive spent the most on advertising.
However, this was not always the case. In recent years, four major insurance companies have reduced their marketing budgets, with some exceptions, to prepare for the significant economic losses caused by the coronavirus disease (COVID-19) pandemic and its economic and social fallout. has been significantly reduced.
Before 2022, Geco reigned as the biggest spender in insurance advertising, but over the past two years, Gecko’s budget has been slashed and Progressive has taken over the top spot. Allstate, which doesn’t have as much advertising freedom as its competitors, experimented with bigger budgets in 2021, but has since scaled back its marketing budget. It is now the lowest in more than five years. And while State Farm has had one of the most stable ad spends in difficult times over the past few years, it has put its money into new places, focusing on TikTok rather than traditional TV ad opportunities like the Super Bowl. has been invested in.
Inverse relationship: fewer ads, higher prices
Over the past five years, advertising costs have declined, but insurance premiums have increased.
For homeowners insurance, average premiums rose about 7% nationwide from June 2022 to June 2024, jumping as high as 48% in some areas. Insurance companies such as State Farm and Allstate have completely withdrawn from certain areas.
Auto insurance prices are rising even more relentlessly, with Americans paying, on average, 20 percent more for auto insurance in June 2024 than they did just two years ago. The four insurance companies listed above, which together control 56.23 percent of the private passenger auto insurance market and just over 40 percent of the home insurance market, have filed for rate increases in dozens of states over the past few years, and have significantly contributed to these rate hikes. Contributed.
Are insurance ads increasing prices?
Companies may spend less on advertising for auto insurance in 2024, but the juxtaposition of multi-billion dollar advertising budgets and high personal insurance premiums means that policyholders will have to pay less for the amount of money insurers spend on advertising. You may be wondering, “Is this increasing my insurance premiums?” Or, to put it another way: If insurance companies stopped spending on advertising, wouldn’t premiums be cheaper?
The answer is no, according to Tim Zawacki, principal research analyst covering the U.S. insurance industry at S&P Global Market Intelligence.
“Our data shows that this is an inverse relationship, meaning that as advertising spend decreases, auto insurance costs are increasing,” Zawacki says. . In fact, advertising spending in the insurance industry is at its lowest level in more than 14 years, he said.
Look at progressives, Zawacki says. Progressive cut its advertising budget by nearly 30% in 2023. However, this action did not provide financial relief to Progressive’s policyholders. Instead, average home and auto insurance premiums rose, even though Progressive could theoretically save $500 million by cutting advertising costs.
The same observation holds true when comparing companies’ advertising budgets and average premiums. According to premium data from Quadrant Information Services, Allstate spends the least on advertising of the four insurers surveyed, has the highest average full coverage rate for $300,000 in claims for auto insurance, and the highest average full coverage rate for home insurance. Second highest. Housing security. Although Progressive spends a lot on advertising, its average auto insurance premiums are the second lowest among the four major insurance companies.
Why advertising costs can’t predict insurance premium rates
The data is clear. Insurance companies that spend a lot on advertising don’t necessarily charge higher rates in proportion to their marketing budget. But why is this so?
Advertising is just one component of an insurance company’s operating expense ratio, or the ratio of total operating expenses (minus depreciation and amortization) to total revenue. Other operating expenses, particularly the cost of making claims to policyholders, have played a larger role in rate increases over the past few years than advertising costs.
The key metrics used by insurance companies to measure profitability are direct losses, or the amount the company has had to pay in insurance claims, and vested premiums, or the amount the company has had to pay in premiums paid by policyholders. is the percentage of the amount recovered. A lower loss ratio indicates higher profitability.
Let’s compare the amount each insurance company spent on advertising in 2023, the amount returned in premiums, and the overall loss ratio, as reported by the National Association of Insurance Commissioners (NAIC).
| Total advertising budget, 2023 | Direct premiums earned (EP), 2023 | EPs per advertising dollar, 2023 | Direct loss vs. vested premium rate, 2023 | |
|---|---|---|---|---|
| state farm | $0.99B | $88.7 billion | $89.58 | 82.85 |
| progressive | $1.2 billion | $5.99 billion | $49.08 | 68.41 |
| Geico | 84 million dollars | $58.1 billion | $69.22 | 66.50 |
| allstate | 65 million dollars | $48.2 billion | $74.15 | 73.12 |
Although Progressive spent the most on advertising, it had the lowest ratio of advertising to premiums earned and the second-lowest loss ratio. In other words, Progressive makes the least amount of money for what it pays for advertising, but still maintains higher profits than its competitors. Meanwhile, State Farm earned nearly $90 in premiums for every dollar spent on advertising, but had the highest loss ratio of the four major insurance companies.
Tim Zawacki said the data “strongly suggests that rising premiums are not driven by increased advertising spending by companies.” Instead, companies like State Farm are losing money due to an increase in catastrophic weather events, an increase in dangerous driving, and historic inflation in the auto repair industry. All of these factors have caused significant financial losses for insurance companies in the wake of the COVID-19 pandemic, which they are still working to recover.
What about insurance companies that don’t advertise at all?
If you have coverage with a small or regional carrier, you may not see their ads on TV. Would cutting out ads completely make coverage more affordable?
That’s not necessarily the case, according to Bankrate data. First of all, every insurance company advertises. Smaller companies with limited regional footprint may not buy spots on national TV, but they still put money into marketing. And while the exact amount spent on advertising may be lower than Progressive or State Farm, it may still represent a similar percentage of overall operating costs. When we look at companies whose advertising budgets have been slashed, we don’t see any obvious cost savings. The chart below shows the average annual full-coverage auto insurance premiums for five popular insurance companies that spend less than $100 million a year on advertising (Farmers, Amica, American Family, AAA, Travelers) and our own advertising costs. We are comparing the average premiums of the top four companies.
As you can see, switching to a company that spends less on marketing doesn’t necessarily mean your premiums will be cheaper. No matter how big or small an insurance company’s advertising budget is, the main factors that cause premiums to rise, such as inflation, climate change, and rising labor costs, still have an impact.
How to save on insurance in an era of large advertising budgets
Switching to a company with a smaller advertising budget may not result in lower rates, but that doesn’t mean you can’t save money on your insurance premiums. If you want to save money on your insurance premiums, consider these strategies to lower your home and auto insurance coverage costs.
- Comparison shopping: Even in a high-price environment, you may be able to save money on coverage by comparing quotes before renewing your policy or after a major life change, such as getting married or buying a new car. Ask at least three to five companies for quotes on the same coverage to find one with a price that fits your budget.
- Compare costs against other factors. Large insurance companies with large advertising budgets may have other advantages, such as higher financial strength ratings, 24/7 customer service, and a smoother claims process. Regional carriers, on the other hand, have a better understanding of the service needs in your area and may have a more personalized customer service approach. When shopping, consider the pros and cons of working with a large company.
- Research discount: Auto insurance discounts can differentiate one company from another depending on what they cover. For example, if you drive an EV, you might want to look for an insurance company that offers special discounts for green cars. If you are a full-time student, a company with a generous student discount may be right for you.
- Work with your broker: Comparison shopping can be time-consuming and frustrating, but working with a broker will reduce the time you spend getting quotes and give you access to competitive rates even from lesser-known insurance companies. Possibly.
