Last year more than $6 billion in advertising was pumped into the marketplace to encourage consumers to shop and switch their auto insurance providers. Everywhere consumers look, they are being hit with insurance ads – television spots, blimps, even field-goal netting at college football games. That steady bombardment of messaging is affecting consumers, but perhaps not in the manner intended.
According to recent analysis performed by J.D. Power, the number of “at-risk” insurance consumers has risen to its highest level since the metric started being tracked 20 years ago. The rate of auto insurance loyalty, as measured by those customers who will “definitely renew” their policy with their incumbent carrier, has fallen to 48% today from 59% in 2004 – constituting a 27% drop in auto insurance consumer loyalty. Over the past year, the rate of switching among insurance shoppers has increased to 35% from 31%, helping to drive down overall insurance customer retention by two percentage points to 88%.
While advertising has played a role, so has the shift in consumer interaction with insurance carriers. Shopping for a quote used to take days. Now, it can now be completed in a matter of minutes or hours from the comfort and convenience of home.
Another key factor has been the rising cost of auto insurance. According to the J.D. Power 2019 U.S. Insurance Shopping Study,SM the average cost of auto insurance has risen at twice the rate of median household income across the U.S. over the past decade. That means that not only is auto insurance taking a larger share of consumers’ wallets, it’s also having a big effect on customer loyalty to their existing insurance carriers.
The broader significance of this trend is that the decline in brand loyalty is disproportionately benefiting carriers that are best-positioned to capitalize on increased in-market movement, or, more specifically, those carriers that have optimized their cost of acquisition. Over the past decade, carriers with a lower cost of acquisition have grown at four times the rate of higher-cost carriers. These carriers have been able to re-allocate expenses, such as commissions, back into the brand in the form of advertising, which in turn creates more shopping churn and lower brand loyalty. This has forced the hand of rival carriers to either follow suit and attempt to replicate lower-cost acquisition models in a race to the bottom, or, alternatively, to place their bets on features that justify higher costs, such as superior customer service delivery…