In Race for New Personal Lines Insurance Business, Exclusive Agents at Disadvantage

April 26, 2019

Personal lines insurers have only one option when it comes to growing their business: they must steal market share from competitors.

That’s because each year brings very few new customers. Only about two to three percent of personal lines customer are new each year, J.D. Power analysts say.

According to the J.D. Power 2019 U.S. Insurance Shopping Study, success in acquiring new customers depends on having a strong brand and meeting customer expectations of convenience and competitive price. When it comes to these important traits, J.D. Power says direct and independent agents are best positioned while insurers that are largely reliant on exclusive agents for new business growth are facing headwinds.

“We’re entering a new era of consumerism in the auto insurance marketplace, in which customers are in the driver’s seat when it comes to the shopping and servicing of their policies,” said Tom Super, vice president of Insurance Intelligence at J.D. Power. “That trend is having a profound effect on the relationship between insurers and customers.”

Super says today’s customers value choice, personalization and a strong reputation in their insurance shopping. “That puts significant pressure on insurers to get their customer models just right with the proper mix of self-service tools, strong brand awareness and an engaged distribution network,” he adds.

The 2019 study says that direct and independent agent models resonate with customers and continue to show increasingly higher levels of customer satisfaction, while the exclusive agent channel is falling behind. In the shopping process, top-performing insurers are operating as customer-facing brands. For instance, insurers that achieve the highest quote rates among profiled insurers also enjoy strong awareness and are perceived as having likable advertising, competitive pricing and being innovative.

Insurers’ financial results in 2018 show that the top 10 carriers that are most focused on the exclusive agent channel lost 1.2% in market share, according to related research in a J.D. Power: P&C Insurance Industry Insight Brief.

That same brief notes that customer satisfaction with independent agents is 20 points higher than it is with exclusive agents.

Columbus, Ohio-based Nationwide has traditionally sold through both exclusive and independent agents. However in 2018, the company announced it was shifting entirely to the independent agency distribution model by July 1, 2020. It is giving its roughly 2,000 exclusive agents the opportunity to transition to an independent agency model, joining with the more than 10,000 independent agents across the U.S. that already represent the insurer.

When the plan was announced, Mark Berven, president and chief operating officer of Nationwide Property & Casualty, said the insurer is committed to offering members a distribution channel that works best for them, “while providing long-term growth opportunities for our agents.”

Other points raised in the latest J.D. Power study:

Shopping and switching rates put strain on loyalty: While very few new customers have entered the auto insurance marketplace this year, the number of existing customers shopping for new policies has increased by four percentage points to 33 shops per 100 policies. Likewise, the rate of switching among insurance shoppers has increased from 31% to 35% during the past year. These two factors have driven down overall insurance customer retention by two percentage points to 88%.

Price and financial outlook related to shopping behavior: Price is the leading factor that triggers shopping by a customer, with 64% of insurance shoppers citing price as their primary reason to look for new insurance. Also competitive pricing (33%) is the most influential driver of the decision to close with a brand. When customer satisfaction with price is lower, shopping rates are higher the following year. Conversely, when satisfaction with price is higher, shopping rates are lower the following year. Shopping rates are also higher when customers have a more positive personal financial outlook.

Unaided brand awareness critical for attracting insurance shoppers: Insurance shoppers obtain an average of three to four quotes when shopping, which J.D. Powers says makes it critical for insurers to be top-of-mind to make it into the consideration set. Brands recalled on an unaided basis are twice as likely to be considered and quoted than brands that are only recognized on an aided basis.

High-value customers become next frontier: High-value shoppers, a segment of the marketplace that represents preferred risk profiles, better credit scores, fewer traffic violations and more insurance products, account for 22% of all insurance shoppers identified in the study. Currently, very few insurers are gaining more high-value customers than they are losing, underscoring the importance of attracting and retaining this lucrative subset of the market, according to the report.

Source: J.D. Power 2019 U.S. Insurance Shopping Study

Was this article valuable?

Here are more articles you may enjoy.