Perhaps with the exception of Californians, most U.S. consumers are paying substantially more to insure their vehicles this year, without seeing immediate tangible benefits. As a result, they are generally less satisfied with their coverage, according to J.D. Power and Associates' most recent study.
“In 2013, there is a sharp rise in the number of customers who have experienced premium increases,” explains Jeremy Bowler, senior director of the global insurance practice at J.D. Power.” The dollar amount of those increases is also larger, averaging $153 in 2013, compared with an average rate increase of $113 reported in the 2012 study."
For its 2013 U.S. Auto Insurance Study, J.D. Power measured customer satisfaction across five factors: interaction, price, policy offerings, billing and payment, and claims. Dropping 10 points from last year’s all-time high, overall satisfaction with auto insurers registered 794 on a 1,000-point scale. Of all five factors, price satisfaction scored the lowest at 716, more than 100 points lower than the averages for interaction and claims.
Despite this drop, the West Lake Village, Calif.-based firm is quick to point out that overall satisfaction in 2013 is still the second-highest level since its inaugural study in 2000. Scores across all five factors have decreased year over year, with price and policy offerings both declining by 13 points. These two factors are the primary forces contributing to lower overall satisfaction.
The researchers acknowledge a direct relationship between the size of the premium increase and the proportion of affected customers who switch insurers. While only 9 percent of customers who experienced an annual rate increase of $50 or less switched insurers, that number nearly doubles to 18 percent when the increase is between $51 and $100, and to 32 percent when the increase is more than $200.
Communicating Rate Increases
The survey results also indicate that many customers opt to shop around and switch insurers when their rates rise rather than make changes to existing policies. This can be attributed to a communication breakdown between insurer and driver, as carriers may fail to adequately notify customers of an impending uptick. This means that prior to the policy renewal letter, the insured may have no idea that his or her premium is changing.
By contrast, when customers do receive pre-notification and are thus able to discuss their options prior to renewal, satisfaction averages 698, or 67 points higher than among customers who did not get to discuss a rate increase prior to renewal.
“In today’s low-interest market, many insurers are filing for new rate structures to rectify underwriting losses,” Bowler adds. “To prepare for the likely downturn in customer sentiment and risk of increased attrition following a premium increase, insurers need to do a better job of proactively reaching out to their customers and explaining the reasons behind the rate increases.”
J.D. Power also found that only 16 percent of customers with a rate increase report having had a discussion with their insurer regarding potentially changing coverage.
While many consumers have a somewhat opaque understanding of not only the bounds of coverage but also the factors determining premium pricing, insurance carriers and agents nevertheless need to enhance communication and keep policyholders informed.
"Generally, customers typically have little understanding of how their rates are set by their insurer, or why prices may vary by sometimes hundreds of dollars between companies when they shop for multiple quotes," says Bowler. "We've seen many companies focus on communicating discounts to strengthen customer perception of value. But the introduction of personal driving data characteristics in establishing discounts, and hence rates, represents another significant step forward for the industry in terms of better communicating price to customers."