"Robinsons" retention could become a major issue for P&C insurers

After a year of record-breaking price increases, many Americans are searching for ways to protect their bank accounts. For insurers, this means even the most loyal of policyholders — those who bundle their homeowners and auto insurance with the same carrier — are at risk of ditching their policies and flocking toward competitors with cheaper rates.

Nicknamed the “Robinsons” by Progressive Insurance, consumers who double down on home and auto policies are a valuable demographic for insurers, and losing them raises profitability concerns in today’s market. That’s because these customers lower the cost of acquisition by offering the chance to sell multiple policies through a single transaction and are consistently among the most loyal — 45% have stuck with their current insurance provider for 11 years or more.

But soaring inflation and the growing popularity of usage-based insurance policies mean insurers need to adapt if they want to keep the Robinsons, and the rest of their customers, on their roster.

When inflation soars, no one is safe

Like their customers, insurers have been battling inflation rates that hit highs throughout 2022 last seen more than 40 years ago, according to the Bureau of Labor Statistics. Those higher costs hit insurers hard when it came to autos, as used-vehicle valuations skyrocketed and repair bills surged, forcing providers to increase premiums to effectively cover rising claims costs. Predictions for 2023 aren’t much better, with rates expected to increase by 8.4% and the average annual premium hitting $1,780, according to a study by ValuePenguin.

Those rate changes haven’t sat well with customers. More than a tenth will shop around when it comes time to renew, largely because of price, research released in December by Bain & Company shows. And better deals can be had easily. A separate ValuePenguin study found that 92% of people who switched auto insurance providers saved money by doing so.

Most worrying for insurers, though, is that rising auto costs are unsettling the typically less price-sensitive Robinsons. These customers experienced the biggest drop in price satisfaction with their current insurance provider, J.D. Power found, dipping 10 points on its scale compared to a one-point decline for non-bundlers. Nearly a third of Robinsons also told J.D. Power they will definitely switch their home insurance provider if an insurer-initiated auto premium increase forces them to look for a cheaper auto policy. This means many multi-policy customers are second-guessing whether packaging their insurance together is still a good deal.

Usage-based insurance has staying power for value-conscious consumers

As customers search for cheaper options in light of inflation, usage-based insurance (UBI) programs have become increasingly popular in the auto insurance space, where 16% of customers are now enrolled in one, according to J.D. Power — twice as many as in 2016. That’s because these pay-as-you-drive or behavior-based programs, as they are also known, use telematics to monitor a person’s real-time road habits and distance covered, typically rewarding good drivers with discounts on their monthly premiums.

Steep drops in the miles customers traveled during the pandemic may have prompted many to switch to usage-based programs, but now the option to personalize your insurance and premium has firmly taken hold. Almost 9 in 10 drivers told LexisNexis they prefer auto insurance pricing based on their actual driving habits, and 71% noted that it felt like a fair way to set a price for their insurance.

Usage-based insurance’s mounting popularity spells trouble for insurers looking to hold on to Robinsons. Increasingly, customers are so interested in using a UBI program that they’re willing to unbundle their auto and home policies to insure their vehicles with a carrier that offers this option, research from J.D. Power found.

Perks help companies stand out

-Focus on customer experience

Providing a good customer experience, particularly through renewal and claim processes, can help offset price hikes and boost retention, Bain & Company found.

Customers whose premiums increased but were still satisfied with their overall renewal experience, largely thanks to helpful and timely communication, are 3.5 times more likely to renew with their current provider compared to those who had a negative experience. As long as their premium increased by less than 10%, they were also nearly equally as likely to stay with their insurer as customers who experienced no price increase.

Customers also want clarity, quickness and ease of use when it comes to all interactions with their insurer, from initial application to claim filing. About three-quarters of insurance professionals believe difficult-to-fill-in applications, lengthy approval times and long waits for claims to be paid are pain points for customers that need improvement, according to Insurtech Insights. Another 62% admit difficulty making a claim is another big problem area for their customers.

Speeding up claims processing and completion, improving customer understanding of monthly bill statements and working with agents to facilitate better claims handling could all be fruitful ways of boosting customer experience, the latest American Customer Satisfaction Index shows.

-Improve digital interactions

Providing top customer experience these days largely comes down to investment in tech innovations and seamless digital interactions through websites, apps and other channels.

But it seems insurers’ digital offerings are not living up to customers’ usability expectations. For the second consecutive year, satisfaction with insurance companies’ digital claims processes has dropped, thanks largely to “clunky interfaces, infrequent updates and frustrating workflows that force [customers] to pick up the phone and chase down information,” J.D. Power reports.

What makes or breaks the digital claims process for the majority of customers? Digital estimation. Policyholders were put off when after submitting photo evidence, they still needed to arrange an in-person estimate, usually preferring to communicate electronically with the estimator through video chat. Additionally, customers who were able to notify their insurer of a claim via a website or app were happier than those who had to do so via a call center.

The simplest change insurers can adopt is just communicating more through their existing digital and mobile channels. Customers were three times more likely to report the claims process was slower than expected when they did not receive regular updates, says J.D. Power. However, those who did were twice as likely to say the process was quicker than anticipated. Similarly, informing customers ahead of time about premium increases helped mitigate some of the negative feelings that price hikes generate.

Insurers who set themselves apart from the pack by offering easy-to-use digital tools that allow customers to apply for coverage, make claims, update accounts and renew policies while proactively communicating with their users stand the best chance of holding on to them. That’s because 2 in 5 customers who faced issues with their insurer told PwC that a lack of digital capabilities made them likely to switch providers.

-Invest in value-add services

Insurers could improve their bottom line and enhance their overall value proposition to customers by expanding their roles to include more active risk prevention and mitigation.

For instance, policyholders enrolled in a usage-based insurance program could have the option to receive real-time alerts such as notifications of incoming bad weather or warnings about unsafe driving habits. All customers could get messages reminding them of vehicle registration renewal, informing them of recall news or providing them with updates on the car’s health and recommended servicing. These additional services go beyond insurance’s traditional role, but the majority of customers across all age groups expressed keen interest in them when polled by Insurance Innovation Reporter.

The same survey found that homeowners are looking for similar safety features from their insurers — policyholders of all ages were very interested in safety sensors, severe weather text alerts and home monitoring for elderly relatives. Some insurers have already taken note. For instance, Hiscox has partnered with a smart water leak alarm company to offer its policyholders a mobile-app detection system, while Chubb, Travelers and American Family have joined with Wildfire Defense Systems to create additional prevention services for homes threatened by wildfires.

These are just a few examples of how insurers can expand their services and help customers see them as more than an emergency contact. Combined with improved customer experience and frictionless digital communications, they can even help insurers keep the Robinsons, as well as single-policy customers, on their books.

Maxime Croll (Maxime.Croll@lendingtree.com) is a senior director at ValuePenguin, a subsidiary of LendingTree, focusing on the insurance industry. Previously she was the Director of Product Marketing at CoverWallet, a commercial insurance startup, and helped launch NerdWallet’s personal insurance business.

Related:

J.D. Power: Auto policy shopping, switching up in Q4 2022

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Customers are unbundling in favor of usage-based auto programs