Wednesday, July 31, 2013

Auto Insurance: Rising Rates Affect Customer Satisfaction

According to a recent study by J.D. Power, consumer satisfaction rates with auto insurance providers have dropped from the all-time high that was seen in 2012. One of the main reasons for this is the rise in insurance rates. While the overall satisfaction level is still a good 794 (on a 1,000 point scale) the score for price satisfaction is significantly less at 716. According to the study, the average price increase in 2013 has been $153 as compared to $113 in 2012.

The Levels of Dissatisfaction

If the number of people who change insurers is taken as a measure of the level of dissatisfaction there is a clear connection between the amount of increase in the rates and the dropping of satisfaction levels. 9 percent of consumers who had their auto insurance rates increase by up to $50 switched their insurance companies. This number doubles to 18 percent when the increase is between $51 and $100; and it jumps to 32 percent when the increase is more than $200.

The lack of communications from the insurance companies has only compounded the problem. It appears that insurance companies are not informing their customers about impending rate increase prior to issuing the renewal notice. Also very little effort was made to help customers examine options available to them that could have reduced the impact of the rate increase. Where customers did receive advance intimation of the rate increases and were able to discuss the options available to them with their insurance companies the satisfaction levels were 67 points higher and the churn reduced. But only 16 percent of customers said they were able to discuss the rate increases with their insurance companies to examine the potential for making cost effective changes in their 
policies.

The Need For Better Communications

The J.D. Power study goes on to suggest that the communication between company and customer needs to be improved. Companies focus on communicating discount and other information that will be received positively by the customer. But little is done to explain to them the modalities of setting insurance rates or why, when shopping for insurance policies, the rates can vary by hundreds of dollars between insurance companies. Very few customers know that in the current low interest market insurance companies are suffering in terms of underwriting losses. The only viable option available to them to rectify the problem is via rate increases.

With the situation unlikely to improve in the near future, a drop in the satisfaction index and higher attrition levels can be expected unless some positive steps are taken by the insurance companies. The seemingly best option before them is be more proactive in reaching out to customers and explaining the rationales behind rate increases. If information flow could be improved and customer understanding increased, it is possible that the satisfaction levels will increase, or at least not drop further. If not, the insurance industry may have to brace itself for even lower levels of customer 
satisfaction and increased attrition.

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