Transcript: Shopping ’til They Drop … That Old Auto Policy

Whether it's satisfaction, inertia or other causes, many policyholders have traditionally remained with their insurance carriers for years. But a multichannel, on-demand world means temptation mounts with every post card, phone call and mouse click. J.D. Power and Associates' Jeremy Bowler has been studying the changing shopping behavior of insurance consumers and will present at this year's Insurance Marketing and Advertising Summit. Details follow this interview. Audio of this interview is available at http://feeds.feedburner.com/insurancemarketing.

McDONALD: I’m Lee McDonald with the A.M. Best Co. Today I’m joined by Jeremy Bowler of J.D. Power and Associates. Jeremy is senior director for the insurance practice at J.D. Power. He’ll be speaking at the Insurance Marketing and Advertising Summit set for Nov. 6 in New York City. His session is titled “What Drives Personal Insurance Customers to Shop.” Welcome, Jeremy.

BOWLER: Thank you, Lee.

McDONALD: Jeremy, could you start out by filling us in on yourself and your background?

BOWLER: I came to J.D. Power in 2001. Prior to that I worked at Young & Rubicam, one of the national ad agencies in strategic planning. Since joining the company, I’ve worked in a number of areas but really helped to grow the insurance practice at J.D. Power. Back in ’01 we had one little study, our humble national auto insurance study, which has blossomed into a portfolio of some six syndicated studies currently for 2008.

McDONALD: A lot of people are familiar with J.D. Power for your association with consumer products, particularly cars and hotels and things like that. How does J.D. Power work and where does that fit in with insurance?

BOWLER: That’s a great question. The first myth is that there really is a J.D. Power. The founder of the company has since retired but the vision that he started was to essentially create a visibility, as he put it: shine the spotlight on industries. He started in automotive. So back some 40 years ago when things first got off the ground, he was focused on vehicle quality, which he felt was lacking at the time and really highlighted the good, the bad and the ugly.

In the current paradigm, I think we’ve got some maybe 80 syndicated studies that are entirely funded by J.D. Power and Associates. So we’re investing the capital to find the respondents, to survey them, to tabulate the results and now on the back end we make that data, the respondent level data but also the conclusions, available for subscription. In this case to the insurance industry but we also serve the automotive industry as you mentioned, many of the travel sector providers like hotels and airlines and so on, as well as other industries besides.

It’s that independence which is central to the public communications that also tends to surface from these studies. So you’ll see, for example, Amica Mutual rated number one by consumers -- not by J.D. Power but by consumers -- and being recognized by J.D. Power through the award that they receive for the service excellence in automotive insurance. But you’ll also see collaboration with publications like your own where we will provide data or insights around various topics to journalistic outlets as well. Again the emphasis being on shining the spotlight on the customer experience, both to inform the industry so they can improve but also to inform the consumer in making sound business decisions for their pocketbooks.

McDONALD: And looking forward to the subject that you’ll be covering at the Insurance Marketing and Advertising Summit, you’ll be focusing on shopping. What would be the high-level summation that you’d give at this point?

BOWLER: The presentation this year that we’ll be giving will touch on a couple of themes but they’re all interwoven in terms of consumer shopping behavior. I’m going to be drawing comparisons or speaking differentially to loyalty and policy retention as exhibited by people who shop, some of whom ultimately will switch. Many in the insurance industry have asked us in the last five years: How many people are out there shopping? I only see the ones that I get to quote. I know how many of my customers lapse at the end of a cycle but I don’t know how many more were thinking about it or were being courted by our competition.

In the presentation we’ll characterize the scale of the problem -- if you want to think of it as a problem. How many people are shopping and how many of them actually leave? What we’ve seen is many more shopped than actually will switch insurers. I want to quantify the number of policies at risk if you will or policies that represent opportunity if you’re looking more in a positive acquisition vein as opposed to a retention vein.

We’ll get into some high-level findings regarding how people are shopping and the migration tools to Web, the use of direct to either compliment or supplant the more traditional agent sales model. Another way that we’ve been asked to analyze the data for maximizing returns for our subscribers is to look for ways to identify greater efficiencies. Principally, in the near-term anyway, those efficiencies are in the way of improving close rates or minimizing what we call escaped shoppers, folks who gave your brand consideration but for a variety of reasons ultimately didn’t choose your offering, didn’t choose to ask for a quote or didn’t choose to actually make the purchase once you deliver that quote to them. In a nutshell I think that’s what we’ll be covering at the conference this year.

McDONALD: Since you’re very closely focused on the relationship between insurers and consumers and particularly shoppers, what’s your take on the state of insurance industry? How focused are they on things like branding and customer experience compared to what you’ve seen in other industries?

BOWLER: If I were to make a generalization, which is always a dangerous thing to do of course, the insurance industry has been blessed by phenomenal retention or renewal rates, averaging about 90% or just under that for the automotive policy renewals. If I compare that to, for example, the automotive industry, even the very best vehicle in terms of sales each year, something like the Toyota Camry, doesn’t come close to a 90% retention rate. The focus in insurance on policy retention, on acquisition and branding. It's something that clearly if we look at what the advertising spend has been in the last decade or so, with a few notable exceptions I’ll grant you, most insurers were just not spending the kind of money that we’re seeing today in advertising. Most of that spend was going toward commissions and the job of finding the next prospect or building the relationship with a customer fell more to the local agent than perhaps to the carrier.

One of the things that we’ve observed is more of a sense of ownership on the part of the insurer, ownership of the relationship with existing customers but also ownership of the responsibility to gain consideration amongst other carriers’ customers or amongst new entrants falling to the brand.

McDONALD: We see a lot of insurance advertising, especially in the auto space. It’s so focused on price. I suspect there’s more to it than that, but is there any sense that insurers are focusing too narrowly in that area?

BOWLER: We’ve been asked about the importance of price, where price comes into play, and both last year and this year in our analysis, and we’ll be covering that in the presentation. The company that sells solely on price, if it’s entirely a price offer, will see greater churn in those people that they acquire. They’re only offering a price point. The customer’s perceived value tends to be far lower and they’re lost easier to somebody else to steal that prospect away on price again. But what we’ve also noted is that consumers have become so jaded by the sales culture, everything is on a discount rack in retail and beyond. It's 20% more if you buy this shampoo versus that one. We expect discounts. We expect sales prices and they no longer have the power that they might have had at one time.

What we’ve seen in insurance is that far fewer people are reacting to a sales message like a postcard that arrives in your mailbox perhaps than we might have anticipated. Price messages alone will not compel somebody to start shopping. Now if I am shopping and, especially in this last year with so many people feeling the pinch from gas prices and increased grocery costs, etc., now I’ve got a large proportion of customers who indicate concerns about their household budgets are leading them to try to save a penny. If they can do that on their auto insurance, that’s just one more opportunity to save to make up for the extra expenses of life.

Price is very important in certain contexts but the advertising centered solely on price is very much for short-term gain. You may win some policyholders who are out shopping trying to save a penny but you won’t necessarily hold on to them as well as other carriers who are really promoting the whole package. The product differentiation in the Allstate advertising, just to name one example, really is attempting -- in my eyes anyway -- to communicate why you’d want to consider them. There may be others who are cheaper but, bottom line, selling on value tends to lead to more loyal behavior down the road than selling solely on price.

McDONALD: Thank you very much, Jeremy Bowler, and we look forward to seeing you on Nov. 6.

BOWLER: My pleasure. Thank you.

Jeremy Bowler will be presenting at the 2008 Insurance Marketing and Advertising Summit, set for Nov. 6 in New York City. Conference information and registration is available online at http://www.ambest.com/imas.

(By: Lee McDonald: [email protected])