January 16, 2020
The US auto industry is estimated to have reached $285 billion in 2019, with the annual growth of 3.3%. Until recently, ~8700 auto insurance players were focused on gaining efficiency and growing their net premiums. Thanks to this, the average policy has grown to over $1000.
Even with the stable growth of the US economy and the auto industry the past five years, about 13% of drivers in the country are estimated to be currently uninsured, with Florida at the highest rate of 27%.
The car insurance market, just like any other market today, is transforming. There are disruptors such as Clearcover, which raised $43M in 2019, aggressively targeting the market share of the insurance incumbents.
What are the top trends that will reshape the trajectory of the auto insurance? Changes happen fast and it’s worth noting which of them are worth paying attention to.
Insurance customers are undeniably price sensitive. They will always consider switching if there’s a better offer on the table. However, if the customers have had deeply meaningful or grateful moments with their insurance providers, they will remain loyal for much longer. They would remember what it felt like to be in an accident and how appreciative they felt when the insurance really came through.
40% of customers decide to continue insurer relationships because of the high-quality customer service. Given how much people rely on feedback from others, investment in customer satisfaction will pay off in word of mouth marketing alone. More and more customers will base their decisions on the insurance carriers with the higher customer satisfaction ratings. Though it’s a double-edged sword. It means that the customer expectations are much higher and one bad interaction, however small, can be costly. Gaining customer trust as a partner requires providing consistent quality of interactions across all touch points throughout the lifecycle of every customer.
Digitalization to minimize customer effort
Studies show that car insurance customers buy their policy online more than any other insurance type. Most people are experiencing constant information overload and fatigue and customers expect their insurer to make it easy for them.
People will rely on reviews both from family/friends and strangers on the internet to get more objective information. So investing in digital presence beyond just the company website is key. Many insurance providers will also offer apps where people can easily manage almost all interactions (claim settlement, billing, policy change, and customer interactions).
According to the 2018 Auto Insurance Study by J.D. Power, customer satisfaction was the highest for insurers which enabled seamless, omnichannel interactions with online and offline communications. Having a digital platform makes it easier for the insurance providers to offer additional, complementary services such as roadside assistance. The simpler it is, the less willing customers are about switching.
Customized policy packages
In 2018, 10% of insurance customers opted in for usage-based insurance programs mainly due to the offered discounts. AI and telematics are enabling more targeted profile assessments of individual drivers based on their behaviors, history and environment. The ambitious disruptors are bringing customized, usage or behavior-based policy packages directly to the consumers.
Root, a Columbus-based started that raised another $350 million in 2019, uses smartphones to assess drivers risk ratings and offer them policies unique to their profiles. Both Clearcover and Root also claim that they are able to slash cost significantly by digitizing most of their experiences so that they can return the benefit directly to the consumers.
These disruptors understand that a new shiny feature (behavior-based policy) will not move the needle. It has to be an end-to-end platform with seamless, digital interactions across all customer needs.
Behavior and usage-based policies mean insurers can more fairly penalize undesirable risk-taking actions and reward risk-reducing patterns. This means that insurers can avoid or minimize having to raise premiums to protect their financial positions, losing valuable customers in the process.