TheAutoInsuranceIndustry-Cornell.pdfVIP

The Auto Insurance Industry Yuki Iwase, Melissa Lercher, Michael Saridakis, Aline Schechter AEM 4550 Spring 2015 Agenda Industry Analysis Industry Wide Advertising Strategies Firm Specific Advertising Strategies Raw Data Analysis Recommendations 2 Source: IbisWorld Industry Analysis The Auto Insurance Industry Why Auto Insurance? . One of the largest advertising to sales ratios . Mostly homogenous product . Advertising crucial to differentiation . Different target markets across firms Key Statistics Revenue (2015) $220.4 Billion Profit (2015) $22.0 Billion Annual Growth (2010-2015) 1.9% Annual Growth (Projected 2015-2020) 2.9% Number of Businesses 1,958 4 Source: IbisWorld The Basics of Auto Insurance Before we discuss the industry’s strategies, it is key to understand its product attributes Auto insurance firms underwrite auto insurance policies, which are experience goods . Assign premiums . Assume the risk of the policies Two main categories of auto insurance . Liability insurance . Comprehensive physical damage policies Two main distribution channels . Traditional (primarily insurance brokers and agencies) . Online How insurance firms make a profit . Only a handful of firms make a large portion of their profit on policies sold to consumers . The majority of firms profit primarily from their investments . Revenue streams primarily depend on renewals . “The average State Farm policy holder has a collision claim every 19 years” – Dick Luedke, State Farm Spokesman 5 Source: IbisWorld Laws and Re