In the ever-evolving landscape of auto insurance, the nation’s insurers find themselves trapped in a cycle of inflation, rising premiums, and a steady increase in customer defection rates. The consequences of this cycle are becoming more apparent, as revealed by the recently released J.D. Power 2023 U.S. Insurance Shopping Study. The study highlights a significant shift in consumer behavior, with a stronger emphasis on cost savings and a growing number of customers actively seeking out new policies and carriers primarily based on price considerations.
According to Stephen Crewdson, Senior Director of Insurance Business Intelligence at J.D. Power, auto insurance customers are now approaching insurance shopping in a manner akin to how they shop for gas. They are taking a proactive stance, actively seeking out insurance plans that align with their budget and needs. This shift in behavior has the potential for long-term implications, particularly for carriers who have traditionally relied on strategies such as bundling and other initiatives to cultivate customer loyalty. In the short term, this trend manifests as increased customer interest in usage-based insurance (UBI) plans and a reshuffling of market share among the top carriers.
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Here are some key findings from the 2023 study:
Auto Insurance Shopping Increases while Customer Satisfaction Stagnates
Despite the increased shopping and switching rates observed during the study period, the average overall satisfaction among auto insurance shoppers remained flat at 861 points on a 1,000-point scale compared to the previous year. In March 2023, the 30-day average shopping rate reached 13.1%, the highest since June 2021, surpassing the 2021 average of 11.4%. Similarly, the 30-day average switch rate in March 2023 rose to 4.1%, compared to the 2021 average of 3.4%.
Price Hikes Drive New-Policy Shopping Rates
The study reveals that auto insurance costs experienced a significant increase of 14.5% in February 2023, more than twice the rate of inflation. Consequently, auto insurance expenses have been accounting for a progressively larger portion of consumer discretionary spending. When customers were asked about their reasons for shopping, 44% reported price checking, while 42% cited a rate increase as the driving factor. Among those shopping due to a rate increase, 41% reported that their rates had increased by 20% or more.
UBI Gains Traction
Usage-based insurance (UBI) programs, which utilize telematics software to monitor driving behavior and assign rates based on safety and mileage metrics, have started to gain mainstream recognition. The study indicates that 22% of insurance shoppers are offered UBI programs, and they are purchased 18% of the time. These figures represent an increase from the 16% offer rate and 12% purchase rate reported in 2020. It’s noteworthy that when carriers offer UBI options, customer satisfaction increases by 6 points.
In terms of market share, Progressive has experienced notable growth while GEICO’s momentum has slowed. Throughout the second half of 2022, GEICO raised its rates significantly above the industry average, while Progressive implemented rate increases during the first quarter of 2022 and subsequently registered lower-than-average increases during the latter half of the year. This period saw Progressive surpass GEICO, becoming the second-largest auto insurer in the United States, with State Farm retaining the top position.
In the study rankings, State Farm secured the highest position among large auto insurers for providing a satisfying purchase experience for the third consecutive year, achieving a score of 877. Liberty Mutual followed closely in second place with a score of 865, while Nationwide ranked third with a score of 861. The segment average stood at 861.
Among midsize auto insurers, The Hartford emerged as the highest-ranked company for the second consecutive year, scoring 887. Erie Insurance claimed the second position with a score of 878, and the Automobile Club of Southern California (AAA) secured third place with a score of 870. The segment average for midsize insurers was 863.
It’s important to note that large insurers are defined as those with direct premiums written of $4.5 billion or more in personal lines auto, while midsize insurers fall within the range of $1 billion to $4.499 billion in personal lines auto.
The 17th edition of the U.S. Insurance Shopping Study provides a comprehensive understanding of each stage of the shopping funnel. The study gathered responses from 10,845 insurance customers who requested an auto insurance price quote from at least one competitive insurer within the previous nine months. The data collection period spanned from March 2022 to January 2023.
As the auto insurance industry continues to evolve, these insights from the J.D. Power 2023 U.S. Insurance Shopping Study serve as a valuable resource for insurers and consumers alike. The study sheds light on the changing dynamics of customer behavior, pricing trends, the growing acceptance of UBI programs, and the evolving market share landscape.