Focusing on customer experience is key to managing higher insurance costs
Helping customers address risks and increase disaster readiness to lower the price of insurance is a win-win.
When people are concerned about the economy, they focus on saving money more than ever. That’s especially apparent with insurance, where consumer preferences in challenging times are often to buy the cheapest coverage they can find or even go without insurance if they can.
For example, a recent LexisNexis report shows shoppers in the U.S. aren’t ready to accept higher auto insurance rates, so many are choosing to shop around for a better value.
Related: How consumer economics impact insurance in 2024
Compounding the issue is that insurance carriers face several headwinds that especially impact our industry (extreme weather, supply chain issues, more expensive repairs, rising labor costs and more), causing them to raise premium prices. Insurance is forever a supply and demand game; the demand is always there but the cost of supply varies often.
This combination leads to several unfortunate scenarios where consumers make poor decisions, and insurance carriers who can’t compete on price lose out, even if they provide the best coverage.
Ultimately, the entire insurance ecosystem should focus on consumer education and the customer experience to ensure people make the smartest possible decisions when it comes to insurance. What follows are my thoughts on what the insurance industry should do to keep consumers informed and what individual carriers should do to stay competitive.
A prevalent need for independent agents
An under informed customer may choose the cheapest available package, which may not cover them correctly if a tragedy happens. This is where independent agents are invaluable. They can do the best job of explaining the true cost and value of each product and answer questions without allegiance to one particular carrier.
Another area where they’re needed: Customers often find out their rates are rising just before their policies renew and have to make the rash decision to keep their coverage. If they buy through independent agents, those professionals can help them navigate that decision quickly, sometimes forewarning the customer that rates may rise.
“Saving money” is the wrong message
Nearly every type of company you encounter has “saving you money” in their banner and CTA. While insurance agents should definitely push for cost-effective plans, this centers the customers’ mind on the short-term savings, and not what it will mean if they need the policy. For instance, if a customer has a surprise loss in their business or home and learns they’re not adequately covered, will they be glad they saved 15% in 15 minutes?
Instead, insurance carriers should focus on the holistic benefits of their plans and spend more time educating consumers about the threat to their savings and other valuable assets if something happens and they don’t have the right coverage.
Transparency is king
Although consumers want to pay less, they are more likely to be understanding if they know about challenges their providers face. Embracing transparency and telling customers why insurance premiums cost what they do will go a long way to maintain customer loyalty (and potentially draw new customers).
For example, customers should know that carriers may need to stop offering a product if it’s not profitable to do so. That’s a real hazard for people in different parts of the country who may not have a lot of choice.
We may also want to educate them on reinsurance and how rates for this necessary product have gone up for carriers too. These and other insights help customers understand that providing insurance has real costs and price increases are tied to reality.
This is another reason why using independent agents is a smart idea. They can share their own stories about their personal insurance rates going up. “I run an insurance agency, and my own personal home insurance has doubled.”
Better education on policy details
There are so many places you can buy insurance online and so many policy details. It’s unfair to blame consumers when they make suboptimal decisions because they are only told about premium costs. It remains true that the regular Jane and Joe don’t understand where the prices are coming from.
An insurance industry that only competes on baseline price will find many customers continually jumping from one carrier to another in search of the cheapest option.
Customers need to understand what they’re giving up if they buy by only looking for the cheapest price, but that will only come if carriers work with independent agents and devote their own resources to educate consumers.
I am lucky enough to go to conferences and events where I hear incredibly smart researchers and economists who easily and comprehensively break down the market forces that guide insurance pricing. Why can’t we, as an industry, provide that context to the people?
Better education about what consumers can do to affect price
While baseline prices are somewhat static due to the headwinds I discussed that are plaguing carriers, the cost of insurance is variable based on several factors that customers can influence.
Customers who maintain a good credit history are considered trustworthy and less prone to risk. Carriers often provide auto insurance discounts for good students, safe drivers and other lower-risk customers, as well as home insurance discounts that include adding safety features. Minor investment decisions can pay homeowners back over time. For example, they can make improvements to their houses, such as installing storm shutters or reinforcing their roofs, which are more likely to lower premium costs.
Helping customers address risks to lower the price of insurance and increase the odds any disaster will be less catastrophic is a win-win for everybody.
Periods of economic uncertainty are challenging for both insurance carriers and customers. However, the insurance industry cannot expect a lot of sympathy, regardless of the pressures they encounter from reinsurance providers and other macroeconomic issues. So it’s incumbent upon them to better educate consumers on benefits beyond premium costs and work with independent agents to create a healthier insurance environment for all.
Belen Tokarski is the president and chief operating officer of Mylo, the insurtech firm that enables companies and agencies to connect individuals and business owners with top-rated insurance products from 100-plus carriers, across business, auto, home, small group benefits, life and individual health. With a passion for leveraging technology to empower business operations, she is responsible for optimizing Mylo’s leading-edge technology platform Amplifi. Tokarski is a recognized leader and pioneer in the insurtech industry with 25 years of leadership in commercial operations and insurance automation strategy. Previously, she was the president of Platform Solutions for Insureon and vice president of Automation Strategy and Agency Solutions at CNA Insurance.
These opinions are the author’s own.
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