The San Diego Union-Tribune
SACRAMENTO, CA — The “cave men” characters in a Geico television ad got their own television series. Allstate is sponsoring college football’s Sugar Bowl. Aliens from the planet Mercury are suspected of keeping rates down.
If you think there are a lot of car insurance ads on television, some wacky and others straightforward, you would be right.
In the past five years, nationwide spending on the ads has zoomed from 26th to 10th among business categories tracked by TNS Media Intelligence — from $393 million in 2001 to $1 billion last year.
“I think the market right now is about as competitive as I have seen it,” said Sam Sorich, president of the Association of California Insurance Companies.
“It’s just red hot,” he said. “Companies have cut rates. There has been some good profitability, and as a result, it’s attracting more companies to be aggressive.”
Experts say the reason for the lower rates is a long-term decline in the frequency of claims, mainly driven by safety improvements such as air bags, side-door guards, and anti-lock brakes.
The average expenditure on auto insurance in California began declining two years ago, dropping to $845 for basic coverage from $847, according to the latest data from the National Association of Insurance Commissioners.
California ranked 18th among states in 2005, above the national average of $829 but well below the average expenditure of more than $1,100 in New York, New Jersey and Massachusetts.
Although statewide averages for last year are unavailable, the trend toward lower rates in California is continuing.
The state Department of Insurance approved $789 million in auto rate reductions last year, ranging from 4 percent to 7 percent, for 77 insurers in the $20 billion California market.
In the scramble for customers, observers say Geico is reshaping the way auto insurance is marketed.
“The volume of advertising has shot through the roof,” said Brian Sullivan, editor of the Auto Insurance Report, a weekly newsletter published by Risk Information in Dana Point. “The main reason is that Geico has proved they can make it work.”
Sullivan said the surge is “kind of a catch-up” for auto insurers who had been spending relatively little on advertising for an industry annually doing $150 billion of business nationwide.
Spending on all types of advertising for insurance went from $1.7 billion nationwide in 2002 to $3.5 billion in 2006, according to information from Dowling and Partners Securities printed in the May 28 issue of Sullivan’s newsletter.
Geico led the way in the broad Dowling report on all insurance advertising, increasing spending from $203 million to $631 million during the five-year period.
TNS Media Intelligence said that in nationwide spending on television ads for auto insurance last year, Geico ranked third with $149 million, behind Progressive at $224 million and Allstate at $219 million.
A Geico spokeswoman, Rachel Veness, declined to comment on the company’s advertising strategy “because of the highly competitive nature of our business.”
Competitive indeed. One series of Geico ads features an animated gecko — a play on the firm’s name — with a British accent. (In one memorable scene, the green lizard casually licks its eyeball.) Geico filed a lawsuit last year against a regional New York auto insurer for ads showing a talking gecko as roadkill. Geico sued a Texas insurance agent for ads showing him “kicking and strangling” a man in a gecko suit.
In California, Geico’s share of the auto insurance market has doubled since 1998. But it’s still relatively small, ranking 10th last year with 3.2 percent, according to the state insurance department’s market share report.
The two leading auto insurers have lost market share since 1998. State Farm had 12.7 percent last year, down from 15.1 percent in 1998. A group that includes Farmers had 9.7 percent, down from 14.6 percent.
One observer who thinks Geico is driving the increase in auto insurance television ads said Geico is aggressively advertising lower rates for good motorists.
“As a result, these other companies are trying to compete, and that is why you see all these television ads,” said Doug Heller of the Foundation for Taxpayer and Consumer Rights.
Heller is the executive director of a group that emerged from the successful 1988 campaign for Proposition 103, which changed the regulatory system for auto and other property/casualty insurance.
Proposition 103 created an elected state insurance commissioner, an office now held by Steve Poizner, and requires that auto insurers get the approval of the state Department of Insurance before adjusting their rates.
The insurance industry, which backed three unsuccessful alternative initiatives to Proposition 103 in a campaign that set spending records, has continued the fight in the courts, the Legislature and the regulatory process.
Last year, former Insurance Commissioner John Garamendi imposed a key provision of Proposition 103: Rates must be based primarily on the driving record and not where the driver lives. Backers of the initiative said some motorists were being penalized with higher rates because they lived in urban areas.
The insurers have until August, two decades after the passage of Proposition 103, to fully comply with reducing the importance of ZIP codes in determining rates.
The Automobile Club of Southern California, a nonprofit with a 9.4 percent market share that ranked fourth last year, said in November that it would comply with the regulations and issued a rate cut averaging 7 percent.
The shift from ZIP codes resulted in a rate increase for 12 percent of the drivers, averaging 5 percent, and a decrease in rates for 88 percent of the drivers, averaging 7 percent, said Auto Club spokeswoman Carol Thorp.
“We have had minimal complaints,” she said. “It’s all going pretty smoothly.”
Insurers say that some location factors, such as auto theft, should not be reduced in rate-making. Some think farm groups may revive the court battle if rural rates soar under the new regulations.
There is a continuing debate over whether Proposition 103, after an initial 20 percent cut required by the measure, is keeping auto insurance rates low or propping them up.
Heller argues that Proposition 103 is the reason that the average California premium for liability-only coverage was $487 in the insurance commissioner’s report for 2005, below the national average of $497.
He said that when claims drop, the rate-making process forces insurers to pass along the savings to drivers. But others say that when claims drop, insurers may delay applying for a rate cut because of the difficulty of getting a rate increase later.
“The impact of Proposition 103 is mostly in the frustration factor of doing business here,” said Bill Sirola, a State Farm spokesman.
Sullivan, the newsletter editor, said that auto insurer profitability in California was below the national average before Proposition 103, but since then it has been above average with the exception of a year or two.
He said that because the rates charged by auto insurance companies vary widely, drivers should shop for a good price while also keeping an eye on the service that would be delivered after an accident.
Sullivan summed up his views this way: “Ads are going up. Shopping is really important. Proposition 103 doesn’t mean anything.”
