Tuesday, May 1, 2012

Online Powers

Got an interesting offer in email the other day:

"J.D. Power and Associates will release the results of the 2012 Insurance Shopping Satisfaction Study ... I’d welcome the opportunity to arrange an interview with our study director."

An enticing proposition, to be sure. Turns out, the report is on the changing face of the auto insurance market, but I think we can also draw some conclusions about health insurance from it. After all, these two seemingly disparate lines of business have a lot in common: they're both based on the principle of indemnity, and most folks need (or believe they need) them.

Jeff Perlman, whose email extended the offer, helpfully included a copy of last year's report, which had this news:

"For the first time, a majority of new buyers of auto insurance initiated their policy purchase by applying for a rate quote online."

Can't say I was terribly surprised at this revelation: between the Mayhem Guy, Flo and President Palmer, it's hard not to be tempted. The question, of course, is the role of the agent in the process. It seems that more folks are initiating the process online; this doesn't necessarily mean that they're buying that way.

But that was then (2011) and this is now; what's new this year? The first is really non-news: the number of folks who actually bought off "the 'net" stayed steady at around 43%. This is somewhat misleading: I thought it meant direct from the carrier, but it really means that plus agent sites, social media, that kind of thing.

This share of the distribution channel has remained fairly steady over the past few years. The major development there is that more folks who started the process online were able to successfully make the purchase that way.

The other "big news" that I found quite interesting is that the "auto insurance shopping rate has reached the lowest point in the past five years, with only 25 percent of insurance customers indicating they shopped for a new insurer in the past 12 months, down eight percentage points from 2011."

It wasn't readily apparent why there was such a big drop-off, so I asked Jeremy Bowler (J D Powers' senior director of the global insurance practice) for his thoughts. Jeremy was the director of this study, and we had a very interesting, 45-minute conversation about it.

An almost 10-point drop in consumer interest seems like a big deal, and I wondered what might account for such a change. Jeremy offered two (non-mutually exclusive) hypotheses:

First, diminishing returns and frequent (what Jeremy called "serial") shoppers. What happens is that folks who have been with one carrier for a while look around, and find that they can save many hundreds of dollars on their premiums just by switching. And that's great (for them), but the next year, thinking they can recapture that glory, they're unexpectedly disappointed by the paltry savings to be had. They may have saved $400 in the initial switch, but the next one might save them only $50, and so they decide it's not worth the hassle.

His other thought had to do with carrier strategies. That is, they offer big savings to new customers, and then hit them up with rate increases the next year (Jeremy laughed when I told him that folks in my side of the business call that "the Blue Cross model").

It was an interesting insight into a side of the business that's generally foreign to me.

[Major InsureBlog Thanks to Jeremy Bowler and Jeff Perlman!]

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