Insurance Company Secret #1

They REALLY Don’t Want You To Know This

How many slapstick commercials with loveable cartoon characters, funny plot lines and slick pitches about “low prices” and “Saving hundreds of dollars” have you seen on TV lately? Wait, now tell me how many times you’ve seen these same companies advertise on buses, benches, billboards, baseball games and…um…bowling? More times than you can count right? EXACTLY!

Question: Who are they trying to target with that extremely broad approach, I don’t even bowl?

Answer: Everyone! The whole point is that they are in your face constantly and building a brand.

Would you like to know how they can afford to do that?

Yeah, I thought so.

The Low Cost Carrier Model

“…We’ve Got The Lowest Prices Around!”

Low cost carriers are the insurance companies that promise (and usually deliver) rock bottom rates while the other types of companies are much more selective in who they take on - thereby minimizing their chances of losing money on bad drivers. The low cost carriers use the “throw everything against the wall and see what sticks” approach to marketing, and of course - their HUGE marketing budget helps! How big you ask? Try over $400 million dollars per year! This is just ONE company, people! $400 million is a lot of money, and no one would spend that kind of money without seeing a return on their investment right? Ohhh, now we’re getting somewhere!

So what does this have to do with stupid commercials?

Everything! Insurance is one of the most profitable legal businesses in the world. The insurer makes money assessing and valuing risk (trust me, it’s boring), but essentially it all comes down to them betting against you. Without discussing hundreds of money making tactics in this industry, let’s just look at the big picture and see how these companies are spending $400 million per year, and why.

Advertising & Claims: Big Business Coming In, $ Coming Out.

Advertising, as you likely know, brings customers in. Now, what about claims? And why does the insurance company care? Insurance claims are the #1 loss leader for an insurance company (meaning, they lose big money every year). If you can maximize acquiring new customers (advertising) and minimize your losses (paying insurance claims) then you have the ideal way to make money as an insurance company.

Now ask me this question, it will be fun.

How can these low cost insurance companies, that give consumers the lowest rates, afford to advertise more than their competition that charges more wouldn’t they go broke?

Ahhhhhh, good question! You can’t have a $400 million dollar a year advertising budget without bringing in profit, especially hundreds of millions of dollars in profit, right? Exactly! So, I’m just going to say this plain and simple, no need to whip out pie charts and actuary tables touting the advantages of an insurance company using proper risk profiling, tracking your driving habits or any other metric to evaluate your ability to keep a car on the road and accident free - nope. It all comes down to this.

THEY PAYOUT ON ONLY A SMALL AMOUNT OF CLAIMS!!!

OUCH!!! Sorry, guys, but it’s the truth. You can tell the customer a million times you’re just out to give everyone, even bad drivers a fair chance and a low rate, but the facts are the facts, and just like payday loans or other financial products pitched at high risk individuals - the claims (no pun intended) don’t add up. Let’s be real here, you can’t have a $400+ million dollar advertising budget without being a little selective - can you? Right? YES, you can! If you don’t pay out the majority of customers insurance claims, it’s pretty much free money at that point! Thanks for coming guys, no we won’t pay for your totalled vehicle, goodbye. Now, don’t think only low cost insurance companies don’t pay out claims, the ENTIRE business of insurance is based on avoiding payment of claims - and all companies do it. Just, some more than others.

The real key in running a profitable company, any company, is limiting your losses. If you’re offering low prices, you have to cut costs somewhere to turn a profit - and with insurance companies - it’s in payment of claims. Thanks to fraud and high risk drivers, insurance companies lose hundreds of millions of dollars annually, the bigger the company the more risk it’s taking on and the more potential for huge losses. It’s as simple as that (obviously, it’s a lot more complex in detail) and the absolute bottom line is…

Insurance Companies Are Betting Against You

Why Are You Telling Me This, and What Are You Selling?

I’m telling you, because I want every person that is required to carry insurance in the United States to understand they have the right to choose their own insurance company. You MUST be very selective when choosing an insurance company to represent you, much like any financial product or service and please do thorough research (ask friends, check out public filings, the BBB, Google them, etc). Afterall, this is a business of profiting off of the chance you’ll never have to pay a claim right? You hate paying that bill, we all do, but since it’s mandatory to carry auto insurance, make sure you make the best possible decision, meaning, the right company, with the right coverage at the best possible price. That isn’t always the lowest price, but it’s not always the highest either - you might be surprised if you do some research and ask knowledgable people.

Now, what am I selling? Nothing. I’m only offering you the opportunity to instantly compare insurance companies side-by-side, nothing more. If you appreciate the information I’ve shared with you, then please help this site out by typing your zip code in the small form below, hitting GO and clicking on insurance companies to get free quotes (yes, it’s free. As in it costs you zero, nothing, nada, zip, etc). If you’d just like to back click and go back to what you were doing, I’m completely fine with it as long as you remember that proper research before buying an insurance policy can be one of the biggest financial decisions you’ll ever make.