Just two insurance carriers – GEICO and Progressive – snagged nearly 92% of all premium growth last year, according to a new study by J.D. Power. The result seems to cement a trend toward increased adoption of direct-to-consumer auto insurance that’s been building for years – and is likely to grow even more in response to the COVID-19 pandemic.
“Over the past decade, auto insurance costs have risen at two times the rate of inflation,” said Tom Super, head of property and casualty insurance at J.D. Power. “That’s consuming a larger share of discretionary income and playing an increasingly significant role in household finances. Add the effects of record-high levels of unemployment and the 52% of auto insurance customers who say they plan to either reduce coverage, shop for another carrier or switch to another carrier because of COVID-19, and the outcome for the industry is clear: price is going to be a bigger factor. Direct insurers are in the best position right now to benefit from this trend due to their cost-of-acquisition advantages, but there’s more to acquiring – and retaining – customers than price alone. Customers who have a poor experience are eight times more likely to shop than those who do not, and brand perception remains critical.”
Other key findings of J.D. Power’s 2020 Insurance Shopping Study included:
- There is little loyalty in the auto insurance market. Prior to the COVID-19 outbreak, 77% of auto insurance customers were either actively shopping or experienced an adverse event – like poor customer service or a rate increase – that triggered shopping. According to a J.D. Power survey conducted on April 14 – in the midst of the coronavirus outbreak – 52% of auto insurance customers said they planned to manage insurance costs by either reducing coverage, shopping for another carrier or switching carriers because of COVID-19.
- Price continues to grow as a factor in customer satisfaction. Since 2012, the price factor measured by J.D. Power’s study has increased by 54% as a key driver of satisfaction with the purchase experience. At the same time, the gap between overall satisfaction and price satisfaction has grown. Over the past decade, customers have generally become more satisfied with their insurers – in all areas except price.
- Direct models are resonating with customers. Direct carriers have several structural advantages that help them click with customers, according to J.D. Power. Lower commissions and administrative expenses give direct carriers a 10-percentage-point cost advantage over exclusive and independent agent carriers. Ninety per cent (90%) of customers say they are open to purchasing auto insurance online. Direct carriers have taken seven percentage points of market share from agent insurers over the past decade, and this year earned the highest scores in every factor of the purchase experience in J.D. Power’s study.
- Poor customer experience destroys brand loyalty. According to J.D. Power, the primary drivers that push customers to shop around are poor service experiences and price. Customers who are frustrated over price are five times more likely to shop around than those who aren’t. Customers who experience poor service are eight times more likely to shop.
GEICO ranked the highest among large auto insurers for providing a satisfying purchase experience, with a score of 867 out of a possible 1,000. Nationwide (862) ranked second, with State Farm (860) rounding out the top three.
The Hartford ranked the highest among mid-sized auto insurers with a score of 895. Erie Insurance ranked second with a score of 880 and American Family ranked third with a score of 878.