Home Insurers, Agents Face Satisfaction Gap with Affluent Gen Y Customers

September 22, 2016

Overall, home insurers are performing better in customer satisfaction as they compete more on improving the customer experience than on price.

However, there is one up-and-coming affluent consumer group — the Gen Y generation or those ages 22 to 39— where insurers and their agents have some work to do if they hope to grow, according to the J.D. Power 2016 U.S. Home Insurance Study.

Traditional insurers will face increasing competition from startup on-demand insurers for these tech-savvy Gen Y customers, the report points out.

Historically, insurers have compete largely on price, according to the analysts at J.D. Power. But the industry is currently in a stagnant or soft cycle, with rates remaining relatively stable. On average, customers report an annual premium charge of $1,186 for homeowners insurance and $259 for renters insurance in 2016, with both remaining relatively unchanged over the past few years.

With homeowners and renters insurance premiums stable, insurers have focused more on customer satisfaction to differentiate themselves from the competition, according to the study.

“Insurers have shifted their competitive focus to improving communication, process efficiency and being easier to work with as a way to solidify and grow their business,” according to Valerie Monet, director of the insurance practice at J.D. Power. “Improvements in processes and customer service benefit everyone—the customer and the insurer. When competing on price, it’s incredibly difficult to provide an outstanding customer experience.”

According to the survey, the shift in insurers’ strategic priorities has resulted in a significant increase in satisfaction. Overall customer satisfaction with homeowners insurers is 804 (on a 1,000-point scale) and overall customer satisfaction with renters insurance companies is 825, each a 17-point increase from 2015.

Monet noted that while in the homeowners and renters segments satisfaction with price is up (+16 points) because rates are stable, the increase in satisfaction with policy offerings (+25) is actually a much larger driver of the overall annual change in satisfaction. Improved communication is helping customers to see the value in the products they purchase. Among homeowners customers, satisfaction also improves significantly in claims (+19 points) and interaction (+10).

“By pleasing their current customers, which builds loyalty and advocacy, insurers benefit financially,” said Monet. “Customers don’t often just pocket the savings that result from stable premiums. If they are happy with their current insurer, they will frequently modify their policy by increasing their coverage or purchasing additional insurance with the savings, such as adding riders for high-priced items like jewelry, artwork and family heirlooms.”

The Young and the Wealthy

Gen Y, or those ages 22 to 39, is now the largest generation in the United States at 75 million or 31 percent of the population and the largest group of home buyers at 35 percent. Over the next decade, Gen Y will become even more influential as they enter their prime years of building assets and accumulating wealth, and, therefore, will likely represent a lucrative segment for insurers to target, according to J.D. Power.

[J.D. Power defines generational groups as Pre-Boomers (born before 1946); Boomers (1946 to 1964); Gen X (1965-1976); Gen Y (1977 to 1994); and Gen Z (1995-2004).

“These young, affluent consumers create an opportunity for insurers looking to grow their business,” said Monet. She said it is important for insurers to understand this generation including that Gen Y consumers use technology in all aspects of their lives, and as high net worth individuals (HNWI) they typically have more complex risk and insurance needs than the average policyholder.

While affluent Gen Y customers are more satisfied overall (34 percent) with their homeowners insurance than are affluent Boomers (27 percent), they are less satisfied with interaction with their insurer’s agents. Gen Y insureds have a greater number of contacts with their insurer and agent than do Boomers, thus the interaction weights more heavily, according to J.D. Power.

According to Monet, improving agent and broker interactions will be critical for insurers looking to attract and retain HNWI Gen Y customers.

“Although many insurers have made great strides in improving the customer experience, there is still significant opportunity to improve customer perceptions of both products and services,” said Monet. “New entrants into the market, such as on-demand insurance, will likely result in shifts in customer expectations. Customer satisfaction is going to be more important than ever before for competitive position and growth.”

On-demand insurance allows customers to insure items just when they need it, turning it on and off, frequently using their smartphone. Often called “just-in-time coverage,” consumers can insure, for example, their bike only while they’re riding it, their skis during a weekend trip or their laptop when used away from the home.

One on-demand insurer, Lemonade, has just starting selling homeowners insurance in New York. The peer-to-peer model startup is now selling homeowners policies in the Empire State beginning at $35 per month, and renters coverage starting at $5 per month.

Trov, with backers including Munich Re, and Slice, with backing from XL Innovate, are among the entrants in the on-demand market, although neither is yet offering home or renters insurance. Trov is focused on providing consumers with coverage for valuables such as smartphones, laptops, cameras and sports equipment for just the time they want coverage, directly from their smartphone, without the involvement of an insurance agent. Slice is promising a pay-per-use policy for Uber and Lyft drivers that covers drivers from the time they turn on the rideshare app until they turn it off.

“On-demand insurance is gaining popularity in markets outside the United States and is slowly growing in the United States,” said Monet. “It’s important that insurers know which segments of their customers would be interested in such insurance products and perhaps develop a similar product to compete in that space.”

The study examines overall customer satisfaction with two distinct personal insurance product lines: homeowners and renters. Satisfaction in the homeowners and renters insurance segments is measured by examining five factors: interaction; policy offerings; price; billing process and policy information; and claims. Satisfaction is calculated on a 1,000-point scale.

In this year’s 2016 J.D. Power U.S. Home Insurance Study that rated 28 carriers, Amica Mutual ranked highest in the homeowners insurance segment for a 15th consecutive year, with a score of 864. Amica Mutual performed particularly well in the billing process and policy information, interaction, policy offerings and price factors. Auto Club of Southern California Insurance Group ranked second (835), followed by Cincinnati Insurance (828), GEICO (826) and Auto-Owners Insurance (824).

The Hartford ranked highest in the renters insurance segment with a score of 841. The Hartford performed particularly well in the billing process and policy information, interaction and policy offerings factors.American Family ranks second (836), followed by Erie Insurance (834) and State Farm (832).

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