Auto insurance market makes sense if you look at shopping behavior
You can't put a price on loyalty, but price itself is very important to consumers.
Insurance customer expectations have evolved over the years as the power in the buyer-seller relationship has shifted toward buyers. As new carriers have emerged and more established ones look to maintain their market share, insureds have more options than ever before — making price and convenience just as important as brand loyalty.
This dilemma is especially true in the U.S. auto insurance market. In February 2019, LexisNexis Risk Solutions commissioned a consumer study of more than 2,000 auto insurance consumers between the ages of 25 and 70 who were the primary household decision-makers and insurance purchasers. Each respondent had owned an auto insurance policy for at least the past year.
Among other things, the LexisNexis data shows “that insurance shopping volumes have consistently grown every single quarter since we started tracking shopping data back in 2009,” says Adam Pichon, vice president and general manager, auto insurance, at LexisNexis Risk Solutions. “A deep dive into our own internal analysis revealed that a staggering 62% of auto policies are shopping off-cycle, or not within the traditional renewal window. This should not come as a surprise; consumers are encouraged by industry-wide advertising campaigns to shop around.”
Who’s shopping?
To better understand how respondents shop, the study categorized them into three groups:
- Recent non-shoppers: had not shopped for auto insurance in the past year
- Shoppers: had shopped for auto insurance in the past year
- Switchers: had shopped and switch auto insurance in the past year
There were no significant demographic differences between respondents in the three groups. However, there are differences between groups in terms of how they research and purchase insurance. Shoppers are more likely to research auto insurance online, contact insurance companies or independent agents while researching and then purchase auto insurance online (directly through an insurance company). Meanwhile recent non-shoppers are more likely to research auto insurance in person, purchase through an agent and renew auto policy immediately upon receiving notice or automatically.
While retention rates vary by distribution channel, at a macro level, retention continues to challenge all carriers. Overall, industry retention hovered around the low 80% mark from 2013-2017.
Improving retention rates may depend on something the industry has plenty of: Data.
“The old adage that knowledge is power is most certainly true and that knowledge comes in the form of data-driven solutions that monitor and anticipate key events in the lives of policyholders. This allows a carrier to be on the front foot and actively engage policyholders at the right time and in the appropriate context to better meet their needs,” Pichon says. “Otherwise, carriers may find that they are the last to know when a customer is shopping, and it is all too late. A proactive, insights-based approach helps create opportunities for the carrier to deepen loyalty and retention among their most valuable policyholders.”
Other key figures from the research:
- Sixty-two percent of auto policies are shopped off-cycle or outside the traditional renewal window.
- Forty percent of U.S. auto policies were shopped in the past year.
- Almost 78% of policyholders have shopped their insurance in the past five years.
- Sixteen percent of auto policies are shopped in the 30 days immediately after renewal.
Price is king
Consumers who switched carriers cite price as the top reason for their decision to change insurers. Price also is the No. One reason consumers don’t switch insurance carriers — they simply haven’t found a better price or value elsewhere.
Even when recent non-shoppers research their insurance options, they typically do so because of price. However, for this group, other shopping drivers include the desire to stay informed about different prices and offerings, their policy is up for renewal, and their premium is increasing.
Despite all of the shopping activity in the marketplace, survey respondents overwhelmingly agree that they are loyal people. However, this affirmation of loyalty doesn’t translate to insurance shopping behavior, as 50% of shoppers expect to shop again in the next year. Even respondents earning between $100,000 and $150,000 indicated their willingness to switch for $100 or less.
Life events matter
Awareness of consumer life stage events and shopping behavior is also key.
Life events — such as an auto or home purchase or the addition of a new family member — are meaningful to consumers and can inspire them to reevaluate their insurance needs. That impacts their shopping behavior. Notably, more than 60% of survey respondents experienced a life event within the past year, and of that group, half claimed that the event affected their decision to shop their auto insurance.
“While price and the search for savings dominate as the number one reason why consumers shop their auto insurance, life events most certainly play a role,” Pichon says. “Generally, the events that have the most influence on auto insurance shopping are adding or removing a new driver; buying or leasing a new vehicle; decreasing household income; buying a new house; getting married or divorced; and moving or relocating.”
Additionally, 65% of respondents expect a life event will occur within the next one to two years, and 40% of recent non-shoppers believe an expected life event will inspire them to shop.
Understanding the why behind consumer insurance-shopping behavior will continue to be important for carriers looking to grow in the U.S. auto insurance market. Carriers focusing on an insights-based approach will be best situated in a market with such fluid and adaptive consumers.
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