Nearly one-third of U.S. auto insurance customers said they have experienced a rate increase during the past year, as the industry raises rates an average of 15.5%, according to the J.D. Power 2023 U.S. Auto Insurance Study.
Auto insurers lost an average of 12 cents on every dollar of premium they collected in 2022—the worst performance in more than 20 years, according to the study.
This has forced insurers to raise rates, resulting in a decline in the satisfaction levels of customers, as the industry raises rates in an effort to fight record-high loss ratios.
Satisfaction with auto insurance has dropped 12 points (on a 1,000-point scale) year over year, the largest decline in the past 20 years. The decline is largely driven by lower satisfaction with the price customers are paying for insurance, a factor that has declined 25 points this year.
This turn of events is driving an increase in the adoption of usage-based insurance (UBI) programs, which base the cost of a policy on a driver’s behaviors, using telematics data, according to the survey. Customers new to an insurer have a high UBI participation rate of 26%.
Blunting the effects of price increases
“Overall customer satisfaction with auto insurers has plummeted this year, as insurers and drivers come face to face with the realities of the economy,” said Mark Garrett, director of insurance intelligence at J.D. Power.
“While insurers are caught between a rock and a hard place when it comes to balancing profitability with customer experience, there are several ways they can blunt the negative effects of rising costs, such as proactively offering customers UBI alternatives, clearly signaling and explaining necessary rate increases, and consistently delivering on brand promises to instill trust.”
Garrett said that in the survey data, they see that the following steps help limit the negative impact of a price increase:
Limit the size of the increase. Larger increases have a much greater negative impact (so smaller increases over time are better received than one large increase at once).
Notify customers of the increase through their preferred channel.
Discuss the reason for the change (in simple terms that they can understand).
Review their policies/discounts and discuss any potential changes to help minimize the increase—e.g., raise deductible, pay in full discount, sign up for UBI, etc.
“We find when customers are notified and understand the reason for the change, the negative impact is minimized,” he said.
Additional survey findings
Other highlights from the survey include:
Price increases were likely more prevalent: More customers likely experienced increases but awareness is affected by the method and frequency of billing and payments. Among those customers who received a bill in the mail and paid in full via credit card, nearly half (45%) said they had a price increase, compared with more than one-fourth (28%) of those who received a digital bill and made automatic recurring installment payments.
Not all customers react the same: Some groups of customers had a more negative reaction to price increases, including those who either rent their residence or do not bundle their home and auto insurance; are single car/single driver households; are open to switching insurers; or those who have a lower perception of their insurer being trustworthy.
UBI sees record adoption: Participation in usage-based insurance programs has more than doubled since 2016, with 17% of auto insurance customers now participating in such programs. Price satisfaction among customers participating in these programs is 59 points higher on average than among non-participants.
As UBI adoption gains, growing pains emerge: While more customers have adopted UBI, the programs are still relatively new. One-third (33%) of customers currently using UBI have been on the program for less than one year. Concerns over accuracy of data collected by UBI technologies have become a pain point, with just 38% of customers indicating that the information collected is “always accurate.”
Customer satisfaction with auto insurance by region
The study also measured customer satisfaction with auto insurance in 11 geographic regions of the country. The highest-ranking auto insurers and scores, by region, are:
California: Wawanesa (843) (for a fourth consecutive year)
Central: Shelter (851) (for a third consecutive year)
Florida: State Farm (833)
Mid-Atlantic: Erie Insurance (863) (for a second consecutive year)
New England: GEICO (836)
New York: New York Central Mutual (842) (for a second consecutive year)
North Central: Erie Insurance (844) (for a third consecutive year)
Northwest: The Hartford (836) (for a second consecutive year)
Southeast: Farm Bureau Insurance – Tennessee (866) (for a 12th consecutive year)
Southwest: State Farm (835) (for a second consecutive year)
Texas: Auto Club of Southern California (AAA) (839)
The 2023 U.S. Auto Insurance Study is designed to examine customer satisfaction in five factors (in alphabetical order): billing process and policy information; claims; interaction; policy offerings and price. It is based on responses from 41,437 auto insurance customers and was fielded from January through April 2023.
Ayo Mseka has more than 30 years of experience reporting on the financial services industry. She formerly served as editor-in-chief of NAIFA’s Advisor Today magazine. Contact her at amseka@INNfeedback.com.
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