Auto Insurance Customer Satisfaction Drops Due to Rising Rates: J.D. Power

June 25, 2013

Due to rising insurance prices and some unhappiness with policy offerings, overall customer satisfaction with auto insurance companies is down in 2013 from an all-time high in 2012, but remains comparatively high relative to the previous decade, according to the J.D. Power 2013 U.S. Auto Insurance Study released today.

The study measures customer satisfaction across five factors: interaction, price, policy offerings, billing and payment and claims.

Overall satisfaction with auto insurance companies is 794 (on a 1,000-point scale), down 10 points from 2012. Despite this drop, satisfaction in 2013 is the second-highest level since the study launched in 2000.

J.D Power said scores across all five factors have decreased year over year, with price and policy offerings both declining by 13 points. These two factors are the primary forces contributing to lower overall satisfaction.

“In 2013, there is a sharp rise in the number of customers who have experienced premium increases,” said Jeremy Bowler, senior director of the global insurance practice at J.D. Power. “The dollar amount of those increases is also larger, averaging $153 in 2013, compared with an average rate increase of $113 reported in the 2012 study.”

The researchers said there is a direct relationship between the size of the premium increase and the proportion of affected customers who switch insurers. While only 9 percent of customers who experienced an annual rate increase of $50 or less switched insurers, the switching rate nearly doubles to 18 percent when the increase is between $51 and $100, and to 32 percent when the increase is more than $200.

Rather than making changes to their existing policy, many customers are opting to shop and switch to a new insurer when their rates go up, according to the survey. This, the authors claim, is because many companies are not adequately notifying customers prior to sending a renewal letter or making efforts to review possible options customers may take to mitigate the impact of a rate change. When customers receive pre-notification, and discuss their options prior to renewal, satisfaction averages 698, 67 points higher than among customers whose did not get to discuss a rate increase prior to renewal.

“In today’s low-interest market, many insurers are filing for new rate structures in order to rectify underwriting losses,” said Bowler. “To prepare for the likely downturn in customer sentiment and risk of increased attrition following a premium increase, insurers need to do a better job of proactively reaching out to their customers and explaining the reasons behind the rate increases.”

The study finds that only 16 percent of customers with a rate increase indicate that they had a discussion with their insurer regarding potentially changing their coverage.

Among the five factors, price satisfaction is lowest at 716—more than 100 points lower than the average scores for interaction and claims.

“Generally, customers typically have little understanding of how their rates are set by their insurer, or why prices may vary by sometimes hundreds of dollars between companies when they shop for multiple quotes,” said Bowler. “We’ve seen many companies focus on communicating discounts to strengthen customer perception of value. But the introduction of personal driving data characteristics in establishing discounts, and hence rates, represents another significant step forward for the industry in terms of better communicating price to customers.”

Source: J.D. Power