The GEICO Gecko is apparently worth nearly $1 billion. Bloomberg and Property Casualty 360 reported that GEICO spent $935 million on advertising in 2013.
The reason the subsidiary of Warren Buffett’s Berkshire Hathaway (NYSE: BRK.B) was willing to spend that much on advertising is easy to see: the value of the premiums insured by GEICO increased by around $2.08 billion, or 11.2%, in 2013. Bloomberg reported that this made GEICO the second largest auto insurance provider in the nation, larger than Allstate (NYSE: ALL).
Allstate, which also owns Esurance, spent $655 million on advertising in 2013. State Farm spent $605 million, and Progressive (NYSE: PGR) spent $608 million. Those goofy commercials are apparently working. Progressive’s business increased by 6.5% in 2013, while State Farm’s grew by 5%.
Another insurer, Liberty Mutual, which increased its ad spending by 23% to $197 million, saw its business grow by around 10%. With numbers like that, spending on car insurance advertising is sure to keep growing and growing for the foreseeable future.
With numbers like that, it is easy to see why Google Inc. (NASDAQ: GOOG) is chomping at the bit to get into the U.S. auto insurance market. There should be plenty of money to be had for the search engine and online advertising giant. The main way Google makes its money is by charging fees for advertising; insurers are already some of its biggest buyers of online advertising.
GEICO, which relies upon direct sales rather than agents to sell its products, shows that Google’s insurance marketplace, which should debut later this year, will be a major money maker. Like GEICO, Google plans to sell insurance directly to consumers rather than give a cut to an insurance agent. That gives it the ability to keep rates lower.
Interestingly enough, GEICO’s operating costs are actually lower than those of competitors that utilize agents. It looks as if the insurance industry is positioning itself to operate in a post-insurance agency world. It also appears that Google is positioning itself to get the cut of the premium that currently goes to your insurance agency.
It’ll be interesting to see if this will actually lower insurance rates for average people or not. One problem that companies like GEICO and Google face is that auto insurance rates are determined by factors such as state law. There might not be as much room for them to maneuver as they think.
Will the insurance agent soon go the way of the milk man, or will insurance agents find a way to survive in this brave new world of insurance? One thing is certain however: GEICO will probably spend over $1 billion on advertising next year, and it will be money very well spent. It also looks as if the gecko is going to be with us for years to come.