The insurance industry is a competitive industry with so many insurance companies striving to sell their policies to consumers. Regardless of the size or type of the insurance agency, the growth of revenue in an insurance company is directly proportional to the amount spent on marketing. But the question remains, why do insurance companies have to spend so much on advertisement?
For most people, insurance is a less interesting topic. This fact is because insurance is less involving for the consumer. This makes it not a fun product. People on insurance plan pay the premiums without much consideration as long as nothing goes wrong. Because most people find insurance ‘boring’, insurance companies have to use catchy ads, memorable slogans, and relatable characters to catch our attention.
Cost of advertising
Insurance companies rely heavily on the advertisement. They have to conduct several campaigns each year for them to make sells. This fact translates to high advertisement budgets. Advertisement budgets consist of the pre-production, Production and post-production costs. The pre-production costs include costs on market research, segmentation, and preplanning. Production cost is the cost spends on advertising campaigns. For an insurance company, more spending on marketing translates to more revenue. The insurance companies can, therefore, spend up to a million dollars on advertisements. For instance, in 2013, Geico spend over one billion dollars in 2013 on advertising. Allstate insurance group spend up to 886 million dollars on advertising in 2013. State farm spend about 802 million dollars on advertising while liberty mutual spends 423 million dollars on advertising in the same year just to mention a few.
Are there disadvantages of spending too much in search of new customers?
According to Velocify’s survey, companies that focus too much on customer acquisition are at risk of retaining their current customers. From the survey, companies that spend more than 15% on marketing tend to see a customer retention rate of approximately 81%, while those that spend 5% or less have a nearly 86% retention rate.
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