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Billions spent to get the attention of drivers who don't care

We've all seen those television ads with talking lizards, flying pigs and over-the-hill rock-and-rollers. But here's the punch line: Consumers may have the last laugh.

The nation's largest auto insurance companies -- Allstate, Farmers, GEICO, Progressive and State Farm, along with their less free-spending but also hyped rivals American Family, Liberty Mutual, Nationwide and Travelers -- now ante up $6 billion a year for advertising. And since 2002, the "Big Nine" have tripled spending yet gotten a meager return on their money, according to a study by McKinsey & Company.

'Arms race' in insurance advertising

In its report, titled "Beyond Price: The Rise of Customer-Centric Marketing in Insurance," the global management consulting firm says that this advertising "arms race" isn't making friends and influencing people. Consumers are looking beyond these commercials and questionable promises of lower prices to find what they really want.

insurance ad spending"The bottom line is that we are seeing a lot of smart insurance shoppers out there," says Sharmila Ray, one of the study's authors. "They don't just see an ad and buy the product. They research and then decide what is best for them."

Long story short: The consumer is outwitting the ad campaigns.

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Diminishing returns

Car insurance companies pay a lot for very little, says the McKinsey study. The drumbeat of price-driven advertising results in annual window-shopping by less than 30 percent of car owners, and only 9 percent actually changed carriers in 2012.

And there's more bad news for these big spenders: The drivers who do switch tend to be "least loyal," says the McKinsey report, meaning they often switch to another carrier, or back to their old one, the very next year.

One-upmanship

So why have auto insurance companies parked more than $19 billion on Madison Avenue in the last decade? The simple answer is one-upmanship, the desire to gain market share from their competitors. But it hasn't worked well. "More than half of that total came from carriers that did not gain share," says the study.

Here are the largest auto insurance companies by market share.

This glut of advertising has given imaginary characters such as the gecko, Mayhem Man and Flo, as well as the companies they represent, enormous brand recognition, concede the report's authors. But that comes as no surprise, since GEICO is the 23rd largest domestic advertising spender, one rung above McDonald's. And Allstate, Progressive and State Farm don't lag far behind.

Consumer control

But the ultimate effect may be as illusory as the commercial characters are.

"Their message was that people could take control of their decision-making," says Tanguy Catlin, another of the study's authors. And, as the study shows, they have.

The McKinsey report is a window on how consumers actually shop for insurance, based on a survey of 16,000 actual shoppers. The authors discovered that while an ad may ignite the process, consumers invariably move to the Internet, "the predominate research channel for shoppers." They rely on family and friends, mobile apps, word of mouth and social media, in addition to insurers' websites, to make their final decision.

And many consumers want to work with an insurance agent. "Most of those who shop do it on their own, but in the end they want someone who can make sure they have the right coverage," says Catlin. At least 40 percent of buyers contact and use an agent, either by phone, email or in person, somewhere during the process.

Another problem with ads geared to getting consumers to switch, McKinsey says, is that it ignores the more than 70 percent who don't even shop around. Within that silent majority are some who don't shop simply because of "inertia," says Catlin, and might be reached if better shopping tools were available on the Internet.

Of the others, more than half are "loyal policyholders" happy with their insurer. But no insurer is really appealing to either group, even though retaining customers is smarter -- and cheaper -- than shopping for new ones. And there's no reason why old customers wouldn't be interested in buying new products.

Making better use of insurance ad dollars

The McKinsey report says that the way to improve the results of ad spending is to target the customers you want, rather than appeal to everyone and end up fighting for the same small sliver. Car insurance companies must move beyond the "serial switchers" and decide how to keep the more valuable, loyal policyholder.

It's "a complex challenge," suggests the study. But there are indications that insurers, well aware of the failure of their ad campaigns, are getting the message and recalibrating.

One effort is affinity marketing, a "friends and family" approach that targets specific groups.

For example, USAA touts its focus on military members, while Nationwide emphasizes that it is owned by its policyholders.

Another is to focus on a particular strength, as Progressive does when it advertises its Snapshot program. This plug-in tool targets buyers who feel that they drive so safely or so little that they're willing to let the insurer's computer monitor their driving. Snapshot alone is now the 20th largest car insurer.

Farmers and State Farm both draw attention to the strength of their agents in their ads, and even GEICO has begun to emphasize technology over pricing with ads for its new mobile app, an appeal to those who rely on their cell phones.

More from Ed Leefeldt here

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