Customer experience: The auto insurance X-factor

Customer experiences with auto insurance companies have changed more in the past decade than in the prior 80 years. The evolution of online quoting, the growing role of self-service tools, and increased overall access to information and company reviews have given customers more power and control in their decision-making processes than ever before.

Additionally, market factors have led to higher prices, making auto insurance a greater proportion of consumers’ take-home income.

These variables, combined with the fact that just 2% of new consumers entered the personal lines auto insurance market last year, put a spotlight on customer experience as the key differentiator that helps insurers retain current customers and attract good risk policyholders from the competition.

But what is it, exactly, that separates a truly superior customer experience with an auto insurance company from the types of empty, transactional interactions that lead to customer attrition? With so much power now in the hands of insurance customers, and insurers scrambling to launch new digital account management features, bundling capabilities and bill pay functionality, what is the right formula for meeting and exceeding customer expectations today?

The J.D. Power Auto Insurance Study measures the attitudes and preferences of current auto policyholders and highlights their experiences across all servicing touchpoints in the value chain. According to our most recent data, the most important components of the customer experience still boil down to getting the basics right when it comes to delivering clarity and transparency around premium increases, delivering functional digital self-service tools, and nailing customer service.

Transparency is key

The last several years of increasing auto accident frequency and severity, along with the rising cost of repairs, have caused insurers to raise premiums out of necessity — often double-digit percent increases in a single year. On the surface, from the customer point of view, premium increases resulting from reasons other than those pertaining to the driver/coverage itself are often perceived as a big negative.

The good news for insurers is there are simple processes that can be implemented to not only mitigate the negative impact of premium increases on customer satisfaction/renewals but also build customer trust with the insurer — a significant challenge for the Insurance Industry.

Clarity and transparency into a premium increase helps demonstrate value and mitigate the negative impacts of such rate hikes. In fact, in our study, we found that customers who experienced a premium increase would end up more satisfied than customers who didn’t experience an increase, as long as they received advanced notification of an increase and proactive communications throughout the year, and completely understood their policy.

What’s more, those same customers who experienced the increase and whose insurer executed best practices that improve clarity and transparency into increases, had significantly higher trust in their insurer than the customers who didn’t experience an increase at all.

Enhanced digital experience

Customers’ expectations of their insurance companies are influenced by all of the companies they do business with, not just those interactions with insurance companies. Over half of consumers in our study (55%) use their retail bank’s mobile app, and two-thirds of them (66%) use the app on a weekly basis. While insurance companies have yet to develop the functionality that would warrant such engagement, the pervasive use of self-service tools outside the industry has already influenced how customers choose to service their policy.

Good old customer service

Agent interactions, either in person or over the phone, that have occurred in the past 12 months of servicing have decreased 12 percentage points between 2010 and 2019. During the same period, mobile app interaction, referring to customers that have used the app at least once in the past 12 months, has increased by 9 percentage points.

However, the general shifts in service delivery has not been bad for all agents. While customers overwhelmingly prefer to handle transactional-type activities through self-service tools, they still want to handle high-value interactions regarding price and policy coverage with an agent or service representative.

Even millennials, who research much of the information they gather online, prefer to validate those opinions with a professional when it comes to price changes and policy coverage.

These three factors — price transparency, efficient digital offerings, and solid multi-channel customer service — are the great equalizers in the current auto insurance marketplace. Increasingly, those who can deliver successfully across these criteria are those that are setting themselves up for success in a tight market where the ability to retain existing customers and attract new ones from competitors is the secret to survival.

Robert M. Lajdziak (robert.lajdziak@jdpa.com) is a senior consultant with the Global Insurance Intelligence practice at J.D. Power.

Join NU|PC360 and a panel of insurance industry thought leaders for the upcoming complimentary webcast, “More Than a Buzzword: How to Improve Customer Experience & Loyalty,” happening at 2 p.m. ET on Tuesday, August 27, 2019.