Youngergenerations, millennials and Gen Z, are the primary groups drivingthe shopping activity. (Photo: Shutterstock)

Most people don't typically associate the word "science" withshopping for auto insurance; however, there are many factors takeninto consideration when trying to determine who is looking forinsurance each year. In TransUnion's most recent Auto Insurance Shopping Index, 21.7% ofconsumers shopped for insurance in 2018, up from 20% in theprevious year.

The primary groups driving the shopping activity were theyounger generations (millennials and Gen Z), who accounted for 39%of the total shoppers, and the subprime credit market which shoppednearly twice as much as prime or above credit consumers. Notsurprisingly, insurance companies also spent a record amountadvertising to consumers in 2018, rising 13.2% (Auto Insurance Report. Vol. 26#31/) overthe prior year to total a staggering $7.49B.

While increased ad spend is almost certainly the primary driverof insurance shopping, not every carrier has the resources orappetite to spend the same amount of money on advertising as thetop 10 carriers. It's key to understanding the other factors thatcause people to shop and leveraging these to get a better return onyour advertising spend.

The most active shoppers

A good place to start is to look at the demographics and who isresponsible for the largest shopping segments. These include theyounger generations and the subprime market. In the case ofmillennials and Gen Z, there is a significant percentage who don'tyet own a home, which makes shopping for insurance relatively morefluid and less complicated compared to consumers with multipleitems to insure.

In addition, younger groups tend to have higher average autopremiums than older drivers, so price sensitivity is a relevantconsideration that can drive more shopping. With the subprimemarket (also known as nonstandard), the price point andavailability of insurance is even more of a challenge as they areconsidered to be high risk and are priced accordingly. Because ofthis, their frequency of shopping is the highest as they attempt toget the best rate possible, even on a minimum limits policy. Thereis also a lot of churn in this market as a relatively highpercentage of policyholders lapse mid-term due to other financialpriorities, forego insurance altogether and re-engage withinsurance once their situation changes.

Life events that "trigger" insurance shopping

Another primary driver of insurance shopping involves life eventtriggers. Observed in credit activity, these are moments such asapplying for a mortgage, changing an address, applying for an autoloan or even shopping for insurance itself. All these life eventsare captured in credit activity and are effective in identifyingprospective clients who are either actively shopping or soon to bein the market for insurance. Insurance carriers can leverage thesetriggers to specifically target these shoppers through direct mailor digital advertising. Life event triggers can also be tailored tospecific credit-based risk targets to ensure an advertising messageis sent to the right person at the right time.

Hard and soft markets

While advertising spend drives shopping activity, there areother market forces behind the scenes that directly impact how much(or how little) the industry spends.  The driving forcewithin the property/casualty insurance industry is a cycle definedby periods of soft market conditions (where premium rates arestable or falling and insurance is readily available) and hardmarket conditions (where rates rise, coverage may be harder toobtain and insurers' profits increase).

We are beginning to enter another soft market (more ad spend andcompetition) as carriers look to aggressively capture market share.(Progressive Insurance alone increased theirtotal spend in 2018 by 41% over the prior year and 86.6% in thelast two years to come in at $1.29B.) Overall profitability hasbeen on the rise as carriers have taken rate increases over thepast few years, in large part to address increased claims frequencylinked to distracted driving and more overall miles driven, andseverity due to an increase in sensors and technology in newervehicles.

Personal connections and social influence

When it comes to influences on insurance shopping, noconversation would be complete without acknowledging the power ofpersonal connections and social influence. In a recent study published by Facebook, 80% ofconsumers noted that they were influenced by recommendations fromfriends and family when deciding which insurance carrier andoptions to select.

This observation was further corroborated in an internalTransUnion proof of concept study, which foundconsumers were twice as likely to shop for insurance if they had apersonal connection with someone who shopped for insurance in thepast 12 months. Understanding the importance of these relationshipscan help carriers conduct outreach that harnesses the power ofsocial influence.

A targeted approach

With roughly one out of every five credit-active consumersshopping for insurance every year (2018 TransUnion InsuranceShopping Study), there is a lot of activity taking place, whichbodes well for the industry. With emerging distribution options anda focus on providing a frictionless consumer experience, it'seasier than ever for buyers to get insurance prices and obtaincoverage.

While price is still a key factor, it is important for carriersto take advantage of available data and intent signals to helptailor their marketing efforts around shoppers who fit their targetprofile. Advertising without focus often results in little returnon investment — as the founder of Macy's department stores JohnWanamaker famously said, "half the money I spend onadvertising is wasted; the trouble is I don't know which half."

Happily, this isn't the case with insurance shopping. Byunderstanding the science behind the who is shopping, why they areshopping and how carriers can increase their odds in attracting andretaining prospects.

David Drotos is vice president of insurancesolutions for TransUnion, has more than 20 years' experiencebuilding digital-enabled direct to consumer channels for insuranceand financial services across a variety of markets. Contact himat [email protected].

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