Could Insurers' Auto Discounts Be Backfiring?

The various auto insurance premium discounts being offered by insurers amid the coronavirus pandemic are not enough to instill customer loyalty – instead having the opposite effect and prompting customers shop around for alternatives, a new study from J.D. Power has found.

The report evaluated the reactions of auto insurance customers to the $10 billion in discounts introduced by insurers over the past week. These discounts were made in response to the drop in driving activity and auto claims caused by COVID-19.

J.D. Power found that not a lot of customers are even aware that the discounts exist. Of the customer respondents to the study’s survey, only 37% said they were aware of the discounts as of April 14. But even among those who know that the discounts are being offered, 50% were more likely to shop for new insurance, switch and/or cancel their policies.

Of the respondents who said they were aware of the discounts, 57% said that the premium relief being offered was not enough. These customers want even more relief, and have turned to other methods to further drive down their insurance costs, such as reducing coverage (30%), shopping for another carrier (27%) and increasing deductibles (26%).

J.D. Power additionally noted that the number of customers who said they will cancel their policy has grown four times in the past four weeks, from 2% to 8%.

The study suggested that once customers become aware of the premium relief being offered by their auto insurer, they are nearly 1.8x more likely to shop around for coverage. J.D. Power said that one of the best ways to prevent customers from shopping around for different coverage is to reach out to them individually - but found that only 36% of customers had been contacted. Not reaching out could result in an almost 50% increased likelihood of switching.

Among those who have not been contacted by their carrier, but wanted to be, 45% of auto insurance customers said they plan to take action to reduce the cost of their own insurance.

Customer satisfaction over the premium relief measures has also taken a dive, the study said. The number of customers who say they are “very satisfied” with the way their insurer responded to the pandemic has declined 27% over the last four weeks.

The significant reduction in miles driven could be the new norm, J.D. Power suggested. Seventy per cent (70%) of auto insurance customers across the US say they are driving fewer miles than normal, and 57% believe their average miles driven will remain lower even after the stay-at-home restrictions are lifted.

Despite the grim outlook, interest in usage-based, telematics-powered auto insurance is on the rise. According to the study, 40% of auto insurance customers last week say they are more willing to consider usage-based insurance – nearly three times higher than it was three weeks ago. J.D. Power also found that the number of people who have signed up for usage-based auto insurance programs has surged.