It’s not a surprise that consumers have altered their insurance shopping habits. But perhaps what is a surprise is how quickly—and drastically—the change has occurred. Three new studies document the evolution.
The Internet has made it quick and easy for people to research, evaluate and compare personal lines quotes from multiple carriers, putting pressure on independent agents and insurance carriers to improve their marketing by better grasping how consumers want to buy their products.
Certainly, the Great Recession, which seems to be edging back onto the stage, has compelled Americans to pinch pennies when it comes to paying for auto-mobile insurance. Cognizant of this renewed frugality, some insurance carriers, primarily the direct writers, are feverishly advertising low-price policies to attract new customers and poach others.
Now comes word from three separate surveys that insurance shopping trends have, indeed, transformed. The collective findings of these reports indicate that consumers have less loyalty when it comes to sticking with current insurance providers. They’re also leveraging the Internet more to shop for the lowest-priced coverage, using the Web and social media to research and compare options and buying online in greater numbers. Policy churn rates have gone up the last two years. Altogether, 40% of consumers shopping for insurance this year switched to a new carrier, according to one of the surveys by J.D. Power and Associates.
Many agents confirm these trends in their regions, particularly the craving to buy the lowest-priced insurance. “There has been a strong effort by certain insurance companies to treat their personal lines products as a commodity, with no emphasis given to the service aspects,” says Doug Wiles, president of Herbie Wiles Insurance in St. Augustine, Fla. “There is only one problem with that—insurance is not a commodity. Telling consumers to pick a price they want to pay for auto insurance and we’ll give [them] a policy ignores the risk factors and personal liability issues that we, as professionals, understand clearly.”
The first of a two-part series on personal lines shopping trends, this article introduces the three surveys and contrasts the findings with agents’ own experiences across the country. Next month, IA will look at how agents and brokers are turning these challenges into competitive opportunities.
The Surveys Say J.D. Power’s study, in its fifth year, purports that the importance of an insurer’s website in generating business among new buyers has been steadily increasing, at the expense of more traditional local agency and call center sales channels. Fifty-four percent of insurance shoppers in the survey reported getting their quote online. Not all of them purchased online, however. Local agents remain the most important distribution channel, with websites in second place.
Another insurance shopping survey by Accenture doesn’t stray far from these findings. The study affirms that the agent network remains the preferred method to buy insurance, even among younger buyers. Fifty-nine percent of shoppers age 25 to 34 say they prefer buying from agents, although 31% indicate that they plan to purchase online in the next 12 months.
This percentage may rise in the future. Seventy-five percent of the 25-34 year-old demographic expressed interest in using online insurance aggregators—websites that compare quotes among different insurers—prior to buying a policy, whereas only 55% of the entire respondent population cited an interest in this method.
In terms of choosing an insurance carrier, the respondents put “speed of problem resolution” at the top of the list of factors in their decision-making, followed by “the ability to offer insurance products and services that meet their needs” (68% and 67%, respectively). Next in line was price, at 65%. Altogether, 21% of respondents say they are considering switching to a new provider at the next policy renewal. Is one-fifth of your agency’s book of business currently shopping?
The third survey—actually two reports—by comScore, Inc., studied both auto insurance shopping and auto insurance servicing. At the release of the surveys in April, the U.S. economy seemed to be on an upswing—hence the study’s finding that consumer sentiment about the economy had picked up a tad. Despite the rosier view, the study indicates that the decrease in consumer loyalty to current insurance carriers has not abated since the beginning of the recession in 2008. Fifty-five percent of respondents say they are seriously considering changing their auto insurance provider this year, down only 1% from last year. Younger consumers are more likely to switch carriers, with 62% of 25- to 34-year-olds seriously considering a change. More than half (51%) of the respondents shopped for insurance in the past year, and 19% signed up with another insurer.
comScore cites price as the big factor driving the vigorous shopping, with 59% of respondents on the hunt for lower-cost insurance. In second place at a comparatively measly 18% was, “I just bought a new or used car.”
The surveys go much deeper than these findings, of course. comScore, for instance, notes that 81% of respondents to its insurance servicing survey indicated they consider their agents to be a “valuable” resource, with 70% stating that they interact with their agents at least once a month. Only 5% of respondents said their agents provide “no value.”
J.D. Power’s study cites the extraordinary sums of money—$5 billion in 2010—being spent by the industry to advertise personal lines products. The top four insurers alone spent $2.6 billion on marketing and advertising. J.D. Power blames the heightened advertising for increases in both insurance shopping and policy defection rates.
Jeff Yates, executive director of ACT (Agents Council for Technology), established by the Big “I” in 1999 to enhance agency productivity, Internet marketing and agency security, has read all three studies and says the findings are consistent with agency experience. “There is no question that the level of insurance shopping has gone up, both online and just shopping in general,” Yates maintains. “I hear this very strongly from agents in all parts of the country. The amount of shopping they’re seeing in this economy is unprecedented, requiring them to spend considerable time remarketing accounts.”
The Word from the Trenches Independent insurance agents across the country echo Yates’ comments. Although the agents operate in states with different rules and regulations governing personal lines insurance, the bottom line for all was essentially the same—consumers everywhere are looking to save a few bucks on their car insurance.
In Fort Myers, Fla., the former housing foreclosure epicenter of the country, many people are so strapped for cash they’re opting for “no price” insurance—going bare without the coverage. “In the thick of the recession, we noticed a lot of our policies just dropped,” says John Gardner, president of Lee County Insurance Agency, Inc., in the city. “We had a lot of heavy construction going on here in the good old days, and as those jobs went bye-bye, people either got rid of their vehicles or just stopped insuring them.”
As these policyholders fell off the book, the phones also starting ringing, Gardner says. “Both existing customers and prospective ones starting calling and asking about price,” he explains. “Because of the intense advertising about low-price car insurance, people started believing they could save all sorts of money. What they didn’t realize is that lower prices come with reduced coverages and limits, raising their personal liability. Unfortunately, the commercials don’t advertise that.”
On the other side of the country in Washington, a similar mindset prevails. “Since the economy took a nosedive in 2007, we’ve seen a lot more shopping by consumers, with some people electing to go without car insurance,” says Susan Knobeloch, director of personal insurance at Lovsted Worthington in Seattle. “Although this is against the law, people are taking their chances.”
Others are blissfully ignorant of insurance terms and conditions, lured by the promise of low prices. “I recently sat down with a young couple [who] did their ‘research’ online and wanted car insurance,” says Knobeloch. “They had some low quotes and wanted to know if I could do better or at least match them. When we got to talking about coverage for personal injury protection, the husband said, ‘We don’t need it since we both have good medical plans at work.’ I said, ‘That’s fine for the two of you, but what if someone else is in your car and he or she lacks medical insurance?’ Had they not sat down with me, they would have inadvertently exposed themselves to a huge liability.”
Other agents are seeing the same trends. “Consumers are lured online by TV ads that offer low-priced auto insurance, so they do a bit of investigating and then come to an agent and ask if we can get them a better deal,” says Ronn Shumaker, vice president of personal lines at The Thompson Group, a Parker City, Ind.-based agency. “What they don’t understand is the deal they’re seeing online is not really a good deal, since the coverages and limits are inferior. This is why it is crucial to sit down and talk with an agent, especially one [who] can compare and contrast policies from several insurers.”
As the surveys point out, many consumers still seek professional counsel before buying something as complex as an insurance policy—the counsel of Kenan Schultheis, vice president and treasurer of Schultheis Insurance Agency in Evansville, Ind., for example. “They hear the TV ads and do their research online, but for the most part they still want to talk to a trusted advisor who can educate them on what they may lose by opting entirely for the lowest price,” Schultheis says.
The phone calls about price comparisons are taking a toll on agents’ time. “We’re spending a lot more time reselling our accounts,” says Schultheis. “We’re having more ‘touches’ with our clients than we previously did to retain them. If they call and say that they’re thinking of taking their business elsewhere, I remind them about the time Johnny had a claim and how having me as his advocate resulted in a quick payment with no squabbling. Are they going to get that kind of service from a 1-800 number?”
Ely Kaplansky would not disagree with these perspectives. “I’m just happy that my clients are calling us first when they hear from a neighbor or on television about a better deal or a lower-priced product,” says the president of Kapansky Insurance in Brookline, Mass. “They’re definitely shopping more and doing their research on the Internet, but most end up buying from agents here. What really hurts is when a client doesn’t call us first and we lose business to another independent agent that writes the insurance with a company we represent. Fortunately, these instances are few and far between.”
Like other agents, Kaplansky cited the differences between low-priced insurance and well-priced coverages. “I won’t provide a quote to someone who calls me out of the blue, even though I could,” he says. “Why? Because I know that quote won’t be accurate. Instead, I want to analyze the client’s situation and provide them with proper coverage. Then, I will give them comparative quotes from eight different insurers that we represent.”
All the agents expressed dismay at the quality of some insurers’ advertisements, which deliver humor at the expense of sound financial advice. John Koegel, executive vice president of Eastern Insurance Group in Natick, Mass., was a member of a focus group recently assembled by the Massachusetts Association of Insurance Agents to explore insurance-shopping trends. The group comprised both agents and consumers. “Many consumers said they were offended by certain ads—they had seen them so many times they were getting irritated,” Koegel says. “Rather than seek out these carriers for an alternative to their current insurer, they stayed put.”
Perhaps the ads have backfired. In the worst days of the recession, Koegel’s agency, like many others, experienced a surge in calls from current and prospective customers wanting to shop for a better deal. The calls have now tailed off. “Our policy retention levels are actually better in the first five months of this year than they have ever been,” he says. “It almost seems like people tested the waters and then decided not to jump in.”