Revisiting Five Forces Influencing P&C Insurance Shopping
Early in 2023, we looked at auto and homeowners insurance shopping and highlighted five overarching forces driving consumer behaviors. As we mentioned then, the scale and speed of change in the insurance industry have increased following the pandemic, inflationary pressures, and changes in other macro trends. Given the increased pace of change, there have been many events in the past 12 months which have affected these forces on insurance shopping.
Insurance shopping itself has shown increased volatility during the past year with historically high rates of shopping for both auto and homeowners insurance in the first half of 2023 followed by decreased shopping in the second half. It appears that consumers were reacting to multiple rate increases by looking for better deals in the first half of the year and after finding all insurers were increasing their premiums, and cheaper insurance was difficult or impossible to find, relented in the second half of the year, accepting these higher insurance premiums.
So far in 2024, consumers have shown a new interest in shopping for both auto and homeowners insurance as shopping trends are moving upward. Given this backdrop, let’s look at the five forces influencing insurance shopping we identified in 2023 and how they have changed:
- Inflation is driving rates and rates are driving shopping
- UBI is taking a larger role in shopping and may break the bundling mold
- Insurers are increasingly targeting the most profitable consumers (“Robinsons”)
- Insurers are pulling back as more consumers are shopping
- Less satisfying claims experiences are beginning to influence more consumers to shop
Inflation is driving rates and rates are driving shopping
Fortunately for insurers, some of the inflationary effects on loss costs (e.g., used-vehicle prices) have reversed during the past year, lessening the upward pressure on combined ratios. However, consumers have yet to see the benefits of this as auto insurance costs showed the largest increase of all components of CPI in 2023 (up 20.6% in January 2024 from January 2023). Thus far in 2024, CPI numbers and rate filings both show continued historical increases. Many are noticing the recalcitrant nature of insurance premium increases, while prices for other goods and services are moderating. This has been a frequent topic of discussion with consumers and the media for more than six months now.
Insurers typically need some time to react to increasing costs with the careful due diligence they give to rate taking and the fact that many states require regulatory filings before rates can be changed. This has led to a longer tail in the inflation story for insurance premiums, but there appears to be light at the end of the tunnel. Many insurers showed favorable underwriting performance in Q4 and notably GEICO, who we pointed out as an example of an insurer engaging in massive cost cutting, has recently reported strong underwriting results for 2023, in total, showing rate adequacy is increasingly becoming the norm.
Insurers and consumers hope the need for premium increases abates as rate adequacy increases, but so far in 2024 consumers have returned to shopping, with auto insurance shopping increasing from 11.7% in December to 12.1% in January and to 12.5% in February. Shopping for homeowners insurance also increased in January and February. Of further note is that the share of consumers citing “my rate recently increased” and “my rate was too high” as the main reasons for shopping reached record highs in our Loyalty Indicator and Shopping TrendsSM (LIST) data in Q4 2023 and are both reasons for shopping increasing further through February 2024.
UBI is taking a larger role in shopping and may break the “bundling mold”
As we noted in 2023’s paper on shopping trends, the J.D. Power U.S. Auto Insurance StudySM shows year-over-year increases in UBI adoption, dating back to 2016. More recent data, coming from our Loyalty Indicator and Shopping Trends (LIST), shows that the appetite for UBI among consumers is continuing to increase in 2024 as 19.6% of consumers surveyed through February 2024 indicate they have UBI and 40.4% of those who switched auto insurers in January or February 2024 say they now have a UBI auto insurance policy. In other words, UBI adoption is increasing, as twice as many new buyers choose UBI than current overall adoption, showing a promising future for UBI and carriers who innovate in this space.
What does that mean for bundling? Research we conducted as part of the J.D. Power 2023 U.S. Insurance Shopping StudySM showed that substantial numbers of consumers are making both bundling and unbundling decisions (auto and homeowners insurance bundles) based at least in part on UBI. Among those who switched insurers, we found that 92%* of those who chose to unbundle said they chose to unbundle auto and home policies due to a UBI offering with a different insurer than the one they chose for their homeowners insurance.
What was surprising, and suggests that UBI might be not simply be “breaking the bundling mold” but is also reinforcing bundling for some consumers, is that 81%* of those who recently switched and chose to bundle told us they did so due to a UBI offering.
Now, not all consumers necessarily enrolled in UBI, but the fact is UBI offerings are playing a substantial role in both bundling and unbundling decisions.
Insurers are increasingly targeting the most profitable consumers (“Robinsons”)
One way that insurers decided to manage the cost pressures while not completely closing the door to new customers was to focus on winning those households that were most likely to be profitable customers moving forward, namely, The Robinsons (homeowners who bundle auto and homeowners insurance with the same insurer). As we noted a year ago, Robinsons represent nearly one-half of U.S. insured households. These households are attractive to insurers since they are less likely to shop and switch insurers, leading to longer-term retention and the potential for cross-selling more products to them, further enhancing insurer financials.
Although data from Q4 2022 showed Robinsons were only slightly more likely to shop for auto insurance than in Q3 2022, through 2023 Robinsons were indeed drawn into insurance shopping as 10.2% shopped their auto insurance policies (many of whom also shopped for homeowners simultaneously) compared to only 9.6% in the second half of 2022, as far back as our LIST data goes for this segment. During the same time period, unbundled households with auto and homeowners insurance (known as Wrights) increased their shopping rate to 15.3% from 14.0%.
So, where did these coveted Robinsons go when they shopped?
Looking at the books of business among the five largest personal lines carriers in the U.S., all of whom were targeting the Robinsons segment, shows mixed performance with these households. GEICO was able to grow the share of their book made up by Robinsons the most, growing this segment from 9.3% of their book through the second half of 2022 up to 15.1% through all of 2023. Although GEICO does not sell their own homeowners insurance, they bundle other carriers’ homeowners products with a GEICO auto product in a way that is transparent to many consumers as many consumers tell us GEICO is their homeowners insurer. USAA also saw a slight increase from 63.1% to 63.8%. Robinsons represented a smaller share of State Farm’s book during this same period (61.8% to 60.8%) while the share of Robinsons in Allstate’s and Progressive’s books remained mostly flat.
Consumers in California and Florida have had unique challenges in their insurance markets that have affected all insurance shoppers, especially Robinsons. As major carriers pulled back on business in those markets, insurance availability (especially for homeowners insurance) created a nearly impossible labyrinth of insurance shopping for many households. The J.D. Power 2023 Q4 Loyalty Indicator and Shopping Trends (LIST) report shows the effects on shopping. In California, between 3.3% and 3.4% of consumers shopped for both auto and homeowners insurance from Q1-Q3, but that rate fell to 2.6% in Q4 as carrier exits affected insurance availability and consequently reduced shopping.
Insurers are pulling back as more consumers are shopping
We noted a year ago how insurers were pulling back from advertising and sales channels as rate adequacy stifled insurers’ appetites for policy growth. Recent financial results have shown a mixed bag for 2023, whereas State Farm announced an underwriting loss of $14 billion, other insurers showed positive results, including GEICO, Progressive, and many others. There are also emerging signs indicative of a turn in advertising spend as select insurers are beginning to ramp up customer acquisition efforts now that rate adequacy appears to be achieved.
While consumers took a bit of a break in shopping for auto insurance in the second half of 2023, that tide appears to be turning as well, as auto insurance shopping was up in January 2024 from November 2023 and December 2023 results, and shopping was up even further in February. Auto insurance switching also reached a level in February not seen since May 2023, indicating consumers are finding more attractive offers from competing insurers at a greater rate than just a few months ago.
As rate increases are still in the offing, at least through the first half of the year, it will be interesting to watch how consumers react and whether a new high-water mark is found in auto insurance shopping this year. Household budgets continue to feel the pressure of recent inflation and finding an auto insurance policy that fits the family’s budget is increasingly a conversation had across the country. Insurers who are confident they are rate adequate stand to win substantial new business if they target the right consumers in this market of increased shopping. Accessing the best data on consumers and their vehicles, and proper application of this data to the underwriting process, stands to benefit both insurers and policyholders.
Less satisfying claims experiences are beginning to influence more consumers to shop
The auto insurance claims environment has been as dynamic during the past couple years as it has ever been, and even that is an understatement. Just as we were publishing our paper on the five forces last year, we were beginning to see nascent signs that consumers were increasingly frustrated with claims experiences and beginning to shop because of it. We mentioned how many factors outside the direct control of insurers were harming claims experiences and how insurers needed to shore up the claims experience, as it is the moment of truth in the insurer-customer relationship.
Insurers certainly put in a great deal of effort to maintain a satisfying claims experience and, while results are mixed, they are much better than they could have been without these efforts. In the J.D. Power 2023 U.S. Auto Claims Satisfaction StudySM, we saw increased customer satisfaction with the score up 5 points year -over year. One specific way insurers are improving the auto claims experience is better managing expectations. While the cycle time for a repairable claim increased to 23 days in the 2023 Auto Claims Study compared with 17 days in 2022 (and up from 12 days in 2020), satisfaction is still up for auto claims as insurers are carefully managing expectations in an environment of supply chain constraints and labor issues. On the other hand, satisfaction in our J.D. Power 2024 U.S. Property Claims Satisfaction StudySM is down 5 points from 2023.
Furthermore, we see fewer auto insurance shoppers mention a recent bad claim as the main reason they shopped for auto insurance, falling to 1.9% in Q4 2023 from 2.5% in Q4 2022. A bad claim experience is a powerful driver for shopping and switching, but insurers have worked hard of late to ensure their customers are at least somewhat insulated from the difficulties in the industry.
Summary
P&C insurers have faced their share of challenges over the last few years and consumers have no doubt felt the same. These pressures have led to a marketplace rife with volatility—for example, the up and down nature of auto insurance shopping and switching during the past year. The year ahead of us gives us many reasons for hope as rate adequacy appears to be achieved for some insurers and on the horizon for many others. CPI numbers are also showing some relief for consumers as overall inflation moderates more broadly throughout the economy. One thing that both insurers and consumers hope for is a return to normal in the insurance space, where claims costs are more predictable and where premiums are more affordable for consumers. As always, we will continue to watch consumer behaviors and measure their perceptions of the industry. There is little reason to doubt there will be some surprises in the year ahead.
*California residents were removed from these analyses due to the unavailability of UBI in that state.
About the Author: Stephen Crewdson is a Senior Director in the Global Insurance Intelligence Group at J.D. Power. His area of responsibility includes intelligence around new customer acquisition, sales, and marketing for the property/casualty industry. He has more than ten years of experience at J.D. Power and a total of more than 20 years in marketing research and consulting.
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