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The Bogus Bonus

October 5, 2011

Chris Garlasco, Owner & Managing Partner - Founders Insurance Group

Have you noticed any television commercials about auto insurance lately? Unlike the mid 1980’s when I started my illustrious insurance career, television has become saturated with ads for car insurance. I am just waiting for the launch of the “Insurance Network!” Even I, an insurance guru, have had enough of the constant barrage of messages. Allstate, State Farm, Farmers, GEICO, Progressive, Nationwide and 21st Century are just the tip of the iceberg.

The main thrust of these ads has been about saving you money. Some even pointing out that your savings will be hundreds of dollars. The fact is that contrary to public opinion, “across the board” large rate increases have been seldom seen over the past few years. Of course the exception to that would be individual rate increases due to changes in that specific individual’s driving history. We have had the longest period of auto insurance rate stability in decades.

Companies have begun to realize that the big savings message is not making the impact that it once did and as a result there are subtle changes taking place in ad campaigns. Companies are increasingly talking about coverage, claim service and value. Some companies have reverted to new gimmicks like advertising a laundry list of discounts leading the consumer to believe that they are the only ones offering discounts that are actually very common to most companies. Some companies have dusted off an old gimmick and repackaged it as something new, the Bonus Check. The gimmick is offering a customer a “Bonus” of cash back for being incident free over the term of the contract. Everyone loves a bonus and the idea resonates with unknowing consumers.

The insurance business is a “numbers business” and if the numbers say that a given group of people with similar profiles will be claim and incident free, those customers will receive the company’s best rate. The numbers don’t lie and due to fierce competition, and regulation, insurance companies are not in a position to greatly “over charge” on a risk. On a numbers basis, in order for a company to offer a bonus, the company must charge a rate that is slightly higher than what the history of that driver’s profile would normally call for. In other words, the “Bonus” is nothing more than a refund of an overcharge of premium!

Big savings, huge discounts and bonus checks have a nice ring to them but in the end, what really matters is, “how will your company perform when you have a claim?” The offer of the correct coverage, company selection, agent knowledge and a competitive price are also important. Over the years, determining quality coverage and sound advice hasn’t really changed all that much. The marketing of insurance has changed dramatically.

Have a great day!

Chris Garlasco

2 Comments leave one →
  1. October 5, 2011 12:40 pm

    Great post Chris! I can’t tell you how tired I am of seeing these auto insurance commercials on EVERY commercial break on EVERY channel. EVERY carrier says the same thing, “we’ll save you 30% on your auto insurance.”

    Does this generic “catchphrase” actually still get people to pick up the phone and call??

    I am an insurance agent/broker focusing on commercial insurance, but the repetition of these commercials continues to push insurance into a commodity and price price price. How about educating consumers on where they’re covered and where they may be exposed if they buy on price only?

  2. Chris permalink
    October 7, 2011 10:51 am

    Hi Jim;
    Each week we come across folks that have purchased this way and we see mistake after mistake on their policies. In most cases, the coverages are not correct or a coverage has been reduced or omitted by their company in an effort to lower the price. I personally have experienced on two occassions where a person in a call center actually told the customer that independent agents “sold extra coverage” to increase commission!

    This disservice only serves to increase public distrust. Independent agencies, even very large ones, do not have the ad dollars to combat this terrible deception, so we are forced to do it on the ground level each and every day, client by client.

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