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Just How Much Do Insurers Spend on Advertising?

 

These days it’s impossible to turn on the TV, listen to the radio or pick up a newspaper without seeing one of GEICO’s colorful new advertisements. If it isn’t the lizard with the cockney accent, then it’s the upscale cavemen glaring at the insensitive television producers. It’s all very funny, and it does a good job of telling you how much money that you can save on your monthly premiums.

Progressive also does its share of advertising, and although they don’t have anything nearly as catchy and humorous as the lizard, you still run across their ads on a fairly regular basis.

Nationwide, Allstate and State Farm take a more serious approach in their ads, usually portraying their agents as community leaders that do nice things like offer teenage girls driving tips and give lower rates to students with good grades. They also have very catchy jingles. "Nationwide is On Your Side” or “Like a Good Neighbor, State Farm is There” are instantly recognizable, and like any good jingle, they are impossible to get out of your head.

GEICO spent $502 million on advertising in 2005 alone. The cost of a 30 second Super Bowl advertisement is over $2 million dollars. A 30 second ad during a lower profile national broadcast is close to $350,000. You can also factor in local television advertising, which is cheaper and can therefore be utilized more often, plus a near constant stream of radio and print ads.

When you hear an enormous number like $502 million, you inevitably start to wonder how it is that anyone can possibly save “up to 15% on car insurance” if so much of GEICO’s revenue is being put toward advertising. But once you realize that GEICO is part of the Berkshire Hathaway investment group, $502 million doesn’t seem like a very big number at all.

“When Berkshire acquired control of GEICO in 1996, its annual advertising expenditure were $31 million. Last year we were up to $502 million. And I can’t wait to spend more.” - Warren Buffett, quoted in the Berkshire Hathaway 2005 Annual Report

The Berkshire Hathaway investment group is the brainchild of Warren Buffett. According to Forbes Magazine, his net worth is somewhere around $42 billion dollars.
\nBerkshire Hathaway has a very simple strategy: find businesses that are profitable and purchase as much stock as they possibly can. It’s worked well for them over the years. Berkshire Hathaway is the proud owner of high volumes of stock in companies such as Coca-Cola, Gillette, Wells Fargo, and Proctor and Gamble. They also have money involved in everything from energy to hotel chains to retail jewelry to furniture sales.
\nAnd out of all these money-making giants, Mr. Buffett’s favorite holding is GEICO.

GEICO is so profitable that it’s helping to cover Berkshire Hathaway losses in other insurance areas. Hurricane Katrina payouts would have adversely affected Berkshire Hathaway’s overall insurance income had it not been for the enormous amounts of premiums that they get on a daily basis from GEICO. In other words, the profit from GEICO was enough to cover the $3.4 billion worth of “mega-catastrophe” damages from a multi-state natural disaster without breaking a sweat. Considering that Berkshire Hathaway has $49 billion worth of insurance premiums (or “float”) in its holdings, they could easily handle quite a few Hurricane Katrina’s a year and not even feel it.

With the premiums from GEICO able to cover the damages from Katrina, it’s easy to see that GEICO is an enormous breadwinner for Berkshire Hathaway. The advertising is obviously working. The parade of talking lizards and cavemen and colorful parody ads has clearly attracted scores of new policyholders. But it’s interesting to notice that while all of the commercials mention “saving a bunch of money” or “saving up to 15%,” on your insurance, none of them say anything about how things are going to go should you actually NEED your insurance.

GEICO engages in the same tactics as any other insurance company. Complaints of bad billing, refusal to pay on claims, stalling and delay tactics and low-ball settlement offers abound on most consumer watchdog group websites. GEICO also engages in the reprehensible practice of charging more for premiums based on education and economic status. A recent company document encouraged adjusters to charge higher rates to “unskilled and semi-skilled blue- and gray-collar workers” because they are more of an insurance risk. These differences in rates vary from state to state; in Louisiana the difference between what an executive and a janitor pay for insurance can be as high as 125%. There is another factor to these differences besides simply stereotyping the driving habits of entire groups of people. GEICO is offering lower rates to those that they think can afford to be in an accident and won’t need as much compensation as a result.

The Law Offices of Dulaney, Lauer and Thomas have figured out insurance company tactics through years of defending the rights of injured Virginians. While we find GEICO’s advertising campaign humorous, it has been the experience of many of our clients that GEICO stops being funny and lighthearted once it’s time for them to settle a claim or write a check.

Anyone who has had to deal with an insurance company for any reason knows what an ordeal it can be. When a claim involves an extended hospital stay or a long term debilitating injury, the stakes get that much higher. Insurance companies routinely take advantage of the fact that most people know very little about liability law. By contacting an attorney to protect your rights during this process, you can avoid a low settlement or an unfair claims denial.

If you or a loved one has been injured in an accident, and feel that the insurance companies are not living up to their obligations, contact our offices for a free legal assessment today.

Carl N. Lauer
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Carl has focused on representing injured persons in Virginia.Workers' Compensation Claims.