OLDWICK, N.J.--(BUSINESS WIRE)--Reaching customers in the most efficient way possible is critical in the very competitive U.S. property/casualty (P/C) market, and those companies that dedicate more resources to advertising typically have seen a positive effect on key loss or expense ratio metrics, and as a result, above-average profitability, according to a new A.M. Best special report.
The Best’s Special Report, titled, “Effective Advertising and Controlled Acquisition Costs Provide Insurers a Competitive Advantage,” states that as average rates for most lines of business decline, companies that prove expert at risk selection and pricing have a better chance of generating underwriting profits and growing their portfolios. To grow those portfolios, direct writers rely on advertising to generate the majority of their business. State Farm Group (State Farm) spends the most on advertising expenses among P/C companies, generating 14.8% of the industry’s total. Allstate Insurance Group, Berkshire Hathaway Insurance Group (Berkshire Hathaway), Progressive Insurance Group (Progressive) and Liberty Mutual Insurance Companies follow State Farm. Compared to growth within the P/C industry as a whole, advertising has helped Berkshire Hathaway and Progressive grow their premium revenue at an accelerated rate, as exemplified by their respective five-year compound annual growth rates relative to net premiums written of 9.8% and 8.5%, respectively, which is more than double the P/C industry average of 3.7%. The rest of the top five are at or just under the average annual industry growth rate. Investments in advertising have helped preserve market share rather than increase it, but considering the P/C market’s hyper-competitiveness, preserving market share is extremely important.
Companies using independent agencies as their main distribution channel have posted superior underwriting results over the last five years, compared with those using brokers, direct writers and exclusive agents. Conversely, the median expense ratios of the direct writers are between six and 10 percentage points lower than those of companies writing mainly through the other distribution channels.
Strategic, targeted television and print advertising, as well as high profile sport-related sponsorships, have had a positive impact on companies’ bottom lines; however, effective advertising does not necessarily track with scale. Middle market and smaller insurers also can benefit from well-thought-out, well-executed marketing and advertising plans, even on a local or regional basis.
To access a copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=266387.
A.M. Best is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.
Copyright © 2017 by A.M. Best Rating Services, Inc. and/or its subsidiaries. ALL RIGHTS RESERVED.