Study: inflation, pandemic spur change in P&C insurance shopping

The P&C insurance industry, frequently considered a conventional and dependably unexciting business clinging to tradition, is undergoing broad and rapid change brought on by both internal and external forces, according to a new look at industry trends.

“The Five Forces Influencing P&C Insurance Shopping,” by J.D. Power Insurance Intelligence, found a very different shopping environment in the P&C sector than what it saw just five years ago.

Driving the external changes are inflation, the COVID-19 pandemic and others. Internally, insurers are expanding user-based insurance platforms, and telematics. They are increasingly targeting the most profitable consumers while exiting unprofitable areas and curtailing new customer acquisition.

Overall, consumers are shopping for P&C insurance more than ever, availing themselves of online price comparison tools and other programs that promise a better deal.

“More than in the past, outside influences are affecting the insurance industry like never before,” said Stephen Crewdson, senior director of Insurance Business Intelligence at J.D. Power and author of the report. “Five years ago, the trends we identified were primarily things that were happening within in the industry, itself. Now, we’re looking at macro-economic effects that are impacting all industries but especially lately, the insurance industry.”

Active P&C insurance shoppers increasing

Crewdson said the percentage of people passively price checking policies has rapidly declined while the number of consumers actively shopping is exploding.

“The passive shopper might look around for competitive rates but rarely switched carrier, even if they could save a little,” he said. “Now, after experiencing a series of rate increases, more people are saying they’re paying too much and are seriously doing something about it.”

J.D. Power survey data showed that shopping for auto insurance increased in the second quarter of 2022 Q2 (from an 11.1% rolling 30-day average to 11.8%) and more consumers cited recent rate increases as their main reason for shopping. Shopping increased again in Q4 (12.1%) as even more consumers mentioned a recent rate increase as their main reason for seeking auto insurance quotes.

“Early indications are that this renaissance of consumer shopping will likely continue into 2023,” the report concludes.

Usage Based Insurance surges

Meanwhile, the popularity of vehicle telematics that track driving behaviors, while not new, is suddenly surging. The report said 16% of auto insurance customers in the U.S. are enrolled in a Usage Based Insurance (UBI) program, while another 32% say they have either participated in the past and/or would participate if it were available.

“Perhaps the offering of UBI (with sufficient discounts) could compel a shopper to move their auto insurance policy to a new carrier, even if they elect not to move the homeowners policy,” the report said. “This has the potential to shift the conversation from saving via bundling to saving overall by placing these policies with different carriers. The implications for insurers
in terms of retention and profitability are clear.”

Crewdson said he didn’t want to predict how fast UBI policies will grow but it’s already close to reaching critical mass.

“Enough people that are choosing it and finding they can save by going with different insurers with home and auto,” he said. “There will always be a segment of the population that can save by bundling but a growing portion are finding they can save more by choosing different insurers.”

Along with reducing costs and increasing rates in an effort to drive down combined ratios, insurers have placed more emphasis on targeted marketing to the most profitable of insureds, Crewdson found. At the same time, P&C insurers are pulling back just as more consumers are shopping.

Insurers ‘pull back’ on customer acquisition

“The increased profit pressures, along with delayed reviews of rate submissions, have caused many insurers to pull back on new customer acquisition,” the report says. “To avoid writing even more unprofitable business in states where pressures are the greatest, many have decided to take steps such as reducing or eliminating advertising, closing sales offices, and requiring payment in full from new customers in these states instead of offering a payment plan.”

Case in point is GEICO, which closed all 38 of its California sales call centers for drivers in response to what seems to be rate inadequacy and the department of insurance not reviewing rate submissions for the last several years.

“P&C insurers had spent more than 20 years increasing ad spend in an arms race to inspire more consumers to shop for insurance and to capture those who do shop,” the J.D Power report said. “ Will an insurer soon figure out how to profitably acquire the increased mass of new shoppers,
return to increased ad spend, and open the throttle on sales channels for new customers? Only time will tell but insurers who can manage this difficult challenge stand to gain a sizable number of new insureds.”

Some of the nagging external factors are causing less than satisfying climates experiences and are causing even more P&C insurance consumers to shop.

“Inflation has driven new and used vehicle prices skyward while supply chain issues and other market difficulties have reduced the supply of many of the replacement vehicles total loss claimants need,” the report said. “Even with insurers writing larger settlement checks than
in years past, many consumers have struggled to find replacement transportation. Repairable vehicles are not only costing more to repair, the cycle time of these repairs is increasing, from an average of 12 days in 2020 to 17 days in 2022.”

Crewdson said the best insurers will benefit from correctly using data.

“Everything that we're seeing right now, speaks to insurers who are using data correctly to be a sophisticated underwriter are really benefiting,” he said. “And all indications are they will in the future as well.”

Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at [email protected].

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Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at [email protected].