Customers find little differentiation among auto insurers – J.D. Power

Auto insurance shopping surged last year amid the COVID-19 pandemic, but little brand differentiation was apparent, according to a new study from J.D. Power.

A 55% decrease in the average number of miles driven – and a record 15% unemployment rate – spurred many auto insurance customers to shop for new coverage after the onset of the pandemic last year. However, shoppers found an increasingly homogenized marketplace where price was the main differentiator, J.D. Power found. According to the company’s 2021 U.S. Insurance Shopping Study, insurers’ efforts to differentiate themselves in the marketplace will increasingly hinge on bringing more innovative products and services to the market.

“The pandemic has revealed a lot about insurance shopping behaviors in 2020, as there was a significant surge in shopping activity among customers who were financially affected and gravitated to big, well-known brands and offers for lower rates,” said Tom Super, head of property and casualty insurance at J.D. Power. “The experience shines a spotlight on the need for more sophisticated acquisition and retention tools. Ironically, while the industry’s estimated annual ad spend now nears $10 billion, consumers say they see less differentiation among the top brands. Following a period of massive disruption and a prolonged, uneven recovery, auto insurance customers have a heightened expectation about factors such as price, flexibility and coverages. Insurers need to get more creative around customer service and delivery, because the current incremental changes are missing the mark.”

Read more: J.D. Power: Pandemic gave auto insurers “breathing room” to refine customer experience

Key findings of the study include:

• 54% of auto insurance customers have taken no action to manage their insurance costs during the pandemic. Of the 46% who have made changes, the most frequent were reducing coverage (17%), shopping for another carrier (15%), increasing deductible (12%), or switching to another carrier (12%). There has been a six-percentage-point hike in shopping activity among customers who have had a pandemic-related change in their financial circumstances.
• Many customers were unaware of insurance industry relief efforts. The auto insurance industry returned $18 billion in auto insurance premiums to customers who have driven significantly fewer miles during the pandemic. However, 43% of shoppers weren’t aware of their insurer making any changes because of the pandemic.
• Customers continued their migration to big brands. The top five insurers, in terms of total premiums, now account for 60% of all auto insurance premiums, up from 44% 20 years ago. 2020 saw another 3% year-over-year increase in customer migration to the five largest insurers. Unaided brand awareness – despite an estimated $10 billion in advertising – has driven the trend, J.D. Power said.
• Customer lifetime value has become a critical metric for carriers. A quarter of auto insurance shoppers are projected to have a higher customer lifetime value due to high credit scores and a high likelihood of adding additional insurance products. According to the study, MetLife (33%), Travelers (32%), and Erie Insurance (31%) have the highest mix of high-lifetime-value shoppers.

Study rankings

Liberty Mutual and State Farm tied for the highest rank among large auto insurers in providing a satisfying purchase experience. Each scored 872 on a 1,000-point scale. The segment average is 871.

American Family ranked the highest among mid-sized auto insurers with a score of 899, followed by America Mutual (891) and Erie Insurance (882). The segment average is 858.