Customers Who Switch Insurers Increasing, Report Says

A study of auto insurance customer satisfaction that ranked Erie first among 18 major carriers has found the number of consumers buying direct from insurers and switching companies has increased.

The data was contained in the J.D. Power and Associates 2008 Insurance New Buyer Study that was released today by the Westlake Village, Calif.-based marketing information services firm.

Other insurers in the top five after Erie, Pa.-based Erie were, in order, Hartford, Conn.-based The Hartford; State Farm, Bloomington, Ill.; Liberty Mutual, Boston; and American Family, Madison, Wis.

J.D. Power said its study examined the purchase behaviors and overall satisfaction of buyers who shop for a new auto insurance company with three key factors measured to determine overall satisfaction.

The company said key factors in order of importance are: distribution channel (50 percent), price (29 percent) and policy offerings (21 percent).

Erie came in first with a score of 896 on a 1,000-point scale, performing particularly well in the price factor. Scores for the other top five were: Hartford (894), State Farm (893), Liberty Mutual (886) and American Family (880).

Others that performed at or above the industry average of 867 were: GEICO (876), Nationwide (875), MetLife (873) and Automobile Club Group (876).

Ranked below average were: Allstate (863), Esurance (860), Safeco (855), Travelers (855), Farmers (849), Progressive (844), American International Group (840), Mercury (836) and Automobile Club of Southern California (808).

As it has in the past, USAA, which is unranked because it limits sales to U.S. Military and their families, scored highest at 922.

J.D. Power noted that State Farm performed particularly well in both the distribution channel and policy offerings factors.

The study found that while 55 percent of all new auto insurance sales are handled by local agents, the percentage of buyers shopping and closing via direct channels--which includes insurer Web sites and call centers--has increased from 2007.

In 2008, 44 percent of buyers who bought auto insurance from a new insurer purchased directly from the insurer, rather than through an agent--an increase of 3 percentage points.

Among buyers who changed their shopping channel, more buyers changed to direct purchasing methods (22 percent) compared with those who switched to using an agent (15 percent).

The study found that in 2008, sales transactions processed entirely on the Web accounted for 21 percent of all new-customer insurance sales.

Jeremy Bowler, senior director of the insurance practice at J.D. Power and Associates, said in a statement,"The shopping experience is the first opportunity that an insurer has to meet or exceed the expectations of prospective buyers. The growing convenience of obtaining quotes, particularly online, makes shopping and switching increasingly simple.

"As a result, insurers who disappoint buyers during the shopping and sales process run the risk of losing sales from potential new customers and of losing renewals from existing customers."

The good news for agents from the study was the finding that buyers who purchase their auto insurance policies through local agents give significantly higher average satisfaction scores compared with those who purchase policies from call center representatives or via Internet channels.

"Buyers who use insurance agents are also more likely to purchase bundled auto and homeowner insurance policies" said Mr. Bowler.

But, he noted, "Despite this trend, insurance providers are steadily enhancing their Web sites capabilities, and shopping through a direct channel certainly has its benefits for prospective buyers, as most cite the ease of conducting business as a primary reason for shopping and purchasing direct.

"As direct channels are steadily enhanced, the challenge for insurers is to accommodate buyers seeking more complex insurance bundles in order to potentially increase close rates via the Web."

The rate of switching insurers has increased--up from 33 percent in 2007 to 39 percent in 2008, the study reported.

Mr. Bowler said in an interview that price is a major reason for switching that has increased markedly as the economy has slowed.

He said 74 percent of everyone who shopped indicated price was among their reasons, and 46 percent said their "number one reason" for shopping was price. The latter figure, said Mr. Bowler, is an 8 percent increase from 2007, when the number was 38 percent.

He said there was also an impact from heavy insurer advertising with a message that it is "so easy to switch."

Fourteen percent of customers initiated the shopping process because of a poor customer service experience. Among them, 73 percent switched insurers, which emphasizes the importance of delivering good customer service, according to the study.

In the past 12 months, 36 percent of customers requested an insurance quote, marking a 5 percent increase from 2007.

Serial shoppers, defined as those customers who have shopped three or more times for auto insurance in the past three years, represent slightly less than one-third of all auto policy shoppers.

J.D. Power said its study results were based on responses from 8,452 consumers who requested an auto insurance price quote from at least one competitive insurer in the past 12 months and includes evaluations of 17,677 unique carrier quotes. The study was fielded in April 2008.