April 24, 2014

Auto insurers must improve their customer experience to retain current policyholders and adjust their advertised prices to satisfy new ones, says J.D. Power & Associates.

About one-third of auto insurance customers sought a new insurer in 2013, according to the research company’s 2014 U.S. Insurance Shopping Study. Most were driven by poor service. Twenty-eight percent shopped after a bad customer experience while just 13% were motivated by a rate increase.

Results indicate that poor experience is largely related to claims, billing and service interactions. If a customer had a poor experience with any of these, which oftentimes occur together, they were more likely to switch, says Colleen Cairns, research manager at J.D. Power & Associates, in an interview.

In order to improve customer experience, insurers must avoid payment fees, provide error-free billing, ensure the customer understands their billing statement, offer online access to policy information, and deliver problem-free service for a 12-month period. Survey data indicates that 81% of customers will stay with their insurer after a highly satisfying first year.

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Price is not as likely to cost insurers their customers, but it remains a key factor among current and incoming policyholders. Eighty percent of customers select the lowest-priced insurer, and results show that overall satisfaction among new auto insurance customers averages 821 (on a 1,000-point scale), a notable decrease from the 2013 score of 828. The drop is largely due to prices, which customers often find higher than advertised by insurers.

“While poor experience will more likely drive customers to shop and switch, rate increases are somewhat more prevalent and occur more than poor service experience. This results in more customers being impacted by rate increases,” explains Cairns. “The market is flooded with shoppers that have perceptions that they’re going to save money.”

Each rate increase typically leads to a corresponding loss of policyholders. With an increase of $50 or less, about 9% of customers will switch insurers. At $50 to $100, that rate doubles to 18%. An increase of $200 or more will lead to a switch rate of 33%.

Insurers may want to reconsider their website content to improve the satisfaction of today’s policyholders. In this year’s study, the agent and call center distribution channels ranked 854 and 850, respectively, says Cairns. Insurers’ websites were rated 806, and this was the first time in a few years that the website score did not increase. The score is based on criteria such as appearance, ease of navigation and clarity of policy explanation, which was the lowest-rated attribute.

“Insurers clearly aren’t doing as good of a job ensuring that the coverage is clearly laid out and easily found on their website,” says Cairns.

This year, Erie Insurance topped the survey results with an overall score of 843. MetLife and State Farm ranked second with a tie of 839. American Family and Ameriprise tied for third with a score of 835. Survey data is based on responses from over 16,900 shoppers who requested an auto insurance price quote from at least one competitive insurer over the past nine months.

Kelly is an associate editor for Insurance & Technology. Prior to joining InformationWeek Financial Services, she was a staff writer for InformationWeek and InformationWeek Education. Kelly has also written for trade ...