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

The primary groups driving the shopping activity were the younger generations (millennials and Gen Z), who accounted for 39% of the total shoppers, and the subprime credit market which shopped nearly twice as much as prime or above credit consumers. Not surprisingly, insurance companies also spent a record amount advertising to consumers in 2018, rising 13.2% (Auto Insurance Report. Vol. 26#31/) over the prior year to total a staggering $7.49B.

While increased ad spend is almost certainly the primary driver of insurance shopping, not every carrier has the resources or appetite to spend the same amount of money on advertising as the top 10 carriers. It's key to understanding the other factors that cause people to shop and leveraging these to get a better return on your advertising spend.

The most active shoppers

A good place to start is to look at the demographics and who is responsible for the largest shopping segments. These include the younger generations and the subprime market. In the case of millennials and Gen Z, there is a significant percentage who don't yet own a home, which makes shopping for insurance relatively more fluid and less complicated compared to consumers with multiple items to insure.

In addition, younger groups tend to have higher average auto premiums than older drivers, so price sensitivity is a relevant consideration that can drive more shopping. With the subprime market (also known as nonstandard), the price point and availability of insurance is even more of a challenge as they are considered to be high risk and are priced accordingly. Because of this, their frequency of shopping is the highest as they attempt to get the best rate possible, even on a minimum limits policy. There is also a lot of churn in this market as a relatively high percentage of policyholders lapse mid-term due to other financial priorities, forego insurance altogether and re-engage with insurance once their situation changes.

Life events that "trigger" insurance shopping

Another primary driver of insurance shopping involves life event triggers. Observed in credit activity, these are moments such as applying for a mortgage, changing an address, applying for an auto loan or even shopping for insurance itself. All these life events are captured in credit activity and are effective in identifying prospective clients who are either actively shopping or soon to be in the market for insurance. Insurance carriers can leverage these triggers to specifically target these shoppers through direct mail or digital advertising. Life event triggers can also be tailored to specific credit-based risk targets to ensure an advertising message is sent to the right person at the right time.

Hard and soft markets

While advertising spend drives shopping activity, there are other market forces behind the scenes that directly impact how much (or how little) the industry spends. The driving force within the property/casualty insurance industry is a cycle defined by periods of soft market conditions (where premium rates are stable or falling and insurance is readily available) and hard market conditions (where rates rise, coverage may be harder to obtain and insurers' profits increase).

We are beginning to enter another soft market (more ad spend and competition) as carriers look to aggressively capture market share. (Progressive Insurance alone increased their total spend in 2018 by 41% over the prior year and 86.6% in the last two years to come in at $1.29B.) Overall profitability has been on the rise as carriers have taken rate increases over the past few years, in large part to address increased claims frequency linked to distracted driving and more overall miles driven, and severity due to an increase in sensors and technology in newer vehicles.

Personal connections and social influence

When it comes to influences on insurance shopping, no conversation would be complete without acknowledging the power of personal connections and social influence. In a recent study published by Facebook, 80% of consumers noted that they were influenced by recommendations from friends and family when deciding which insurance carrier and options to select.

This observation was further corroborated in an internal TransUnion proof of concept study, which found consumers were twice as likely to shop for insurance if they had a personal connection with someone who shopped for insurance in the past 12 months. Understanding the importance of these relationships can help carriers conduct outreach that harnesses the power of social influence.

A targeted approach

With roughly one out of every five credit-active consumers shopping for insurance every year (2018 TransUnion Insurance Shopping Study), there is a lot of activity taking place, which bodes well for the industry. With emerging distribution options and a focus on providing a frictionless consumer experience, it's easier than ever for buyers to get insurance prices and obtain coverage.

While price is still a key factor, it is important for carriers to take advantage of available data and intent signals to help tailor their marketing efforts around shoppers who fit their target profile. Advertising without focus often results in little return on investment — as the founder of Macy's department stores John Wanamaker famously said, "half the money I spend on advertising is wasted; the trouble is I don't know which half."

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

David Drotos is vice president of insurance solutions for TransUnion, has more than 20 years' experience building digital-enabled direct to consumer channels for insurance and financial services across a variety of markets. Contact him at David.Drotos@transunion.com.

Related:

Special Reports /

The science behind insurance shopping

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