Study looks at rising auto insurance costs, consumer trust

By Doug Bailey

Auto insurance prices have increased by 11.2% over the last year and because insurers are still losing five cents for every dollar of premium collected, it is unlikely that auto insurance costs will stabilize anytime soon.

A new U.S. vehicle insurance study by J.D. Power finds that in addition to increased repair costs, a number of other issues are further placing a financial burden on insurers, including:

Soaring medical expenses
Rising number of accidents
An increasing number of collision-damaged automobiles being declared a total loss

Rate hikes and trust

But there is some good news for insurers in the study. J.D. Power found that if customers have a high degree of trust in the insurer, premium increases don't always lower consumer happiness.

Although overall trust levels are low for auto insurance companies, the study reveals that these rate hikes do not necessarily dampen customer satisfaction, provided there is a high level of trust in the insurer.

“Trust level can be a bit nebulous,” says Breanne Armstrong, J.D. Power’s head of global insurance intelligence. “"But using factors like billing, policy information, transparency, and claims efficiency, and other metrics we can understand and get a sense of what drives trust. It’s tricky, because it can feel like trust is a driver and an outcome almost at the same time.”

Auto insurance costs still rising

Auto insurers are in a tough position right now, she said, with repair costs still rising—and with more than 20% of vehicles involved in collisions now considered total write-offs—insurers are still losing money, despite passing along huge price increases to their customers. For this reasons, auto insurance costs are likely to continue to rise.

Key findings from the study underscore the importance of trust in maintaining customer satisfaction and brand loyalty. Customers with the highest level of trust in their insurer report an average satisfaction score of 917 out of 1,000, which is 426 points higher than those with the lowest level of trust. Additionally, 90% of highly trusting customers are likely to renew their policies, compared to just 30% of those with low trust.

“Those who have higher trust tend to be less price sensitive,” Armstrong said. “So insurers are more likely able to retain those individuals if prices go up. Not only retain them, but they're also less likely to have like a huge drop in satisfaction. I speculate some of that is because if the customer trusts you, they’re likely to understand why the company is doing what it has to do.”

About half have little trust

Still, the study found that slightly more than half (51%) of customers have little trust in their auto insurer. Only 15% of customers exhibit high levels of trust, while 34% have mid-level trust. Regional disparities also play a role, with Florida—where the incidence of rate increases is highest—having the lowest trust scores. In Florida, 55% of customers report low levels of trust in their insurers.

Managing customer expectations around rate increases is essential for building trust, the study suggests. Customers who understand and expect insurer-initiated rate increases have an average trust score of 735, nearly identical to the 736 score among those who experienced rate decreases.

The J.D. Power study measures customer satisfaction across 11 geographic regions and includes a separate category for usage-based insurance (UBI), which evaluates the customer experience with these products. The highest-ranking auto insurers and their respective scores by region are detailed in the full study and, interestingly, the largest and most visible auto insurers like Progressive, GEICO, Liberty Mutual, and State Farm, don’t register.

New customers 'harder to satisfy'

“It shows what some carriers are able to accomplish when they are smaller or have a more regional footprint,” Armstrong said. “I think also that newer customers are harder to satisfy. So if you're a company that's bringing in a lot of new customers who don't really know you, and you don't have that trust established, you're starting from scratch with them.

Erie Insurance scored the highest ranking for both Mid-Atlantic and the North Central regions, followed by Amica in New England, Alfa Insurance in the Southeast, and Texas Farm Bureau in Texas.

The U.S. Auto Insurance Study, now in its 25th year, was redesigned for 2024. It measures customer satisfaction with auto insurers based on performance in seven core dimensions on a poor-to-perfect rating scale. Individual dimensions measured are (in order of importance): level of trust; price for coverage; people; ease of doing business; product/coverage offerings; problem resolution; and digital channels. This year’s study is based on responses from 41,242 auto insurance customers and was fielded from August 2023 through April 2024.

Rising insurance prices are now impacting inflation rates like never before and the industry is focused on setting rates without disrupting their markets or alienating customers.

“Insurance premiums continue to have a significant influence on the Consumer Price Index, but the impacts are not monolithic,” said Insurance Leader at KPMG USA Scott Shapiro. “The trends vary across many dimensions and the industry is deeply analyzing these trends in order to optimize pricing.”

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