Motor Insurance: The Renewal Merry-Go-Round

Financial Services Team Blog

Michael Worledge

Our recent Harris Poll data shows that 67% of consumers who bought or renewed car insurance in the last 12 months used a price comparison website. The ease of switching and focus on price encourages many people to switch every year – a renewal merry-go-round which does nothing to help build consumer trust in an industry that is to be probed after a consumer watchdog found evidence that drivers are being overcharged. But it’s not all about price and comparison sites.

Renewal journeys are more complex than that. Haggling, even taking out new policies with the same insurer are all commonplace, and yet brand remains important.  Every year, my own renewal journey is fairly systematic, but hardly straightforward. I check the renewal premium against last year, then look at probably two price comparison sites then will go direct to two or three websites of insurers who offered cheaper quotes. There are slight differences each time in the questions asked so the quotes end up different from those on the comparison sites. I check what’s included in the cover and the excess (all different of course) and make my decision from there. Of course, my journey is just one of many different possible journeys  but my behaviour is not that of someone with a deep relationship with their insurer.

Last time out, I managed to save over £200 so it didn’t even occur to me to try haggling with my previous insurer (surely they wouldn’t drop their price that much?). But 35% who renewed with the same insurer did haggle with the insurer before renewing. A sign of the times perhaps. Haggling is certainly more common these days but how healthy can this be for the motor industry which has failed to make a collective underwriting profit in 16 years. Comet was recently named the top high street store for haggling (MoneySavingExpert survey, Sept 2012) but fell into administration just weeks later. Haggling does allow insurers the opportunity to engage with customers and to offer them different options but would it not make sense to start this engagement earlier, before the renewal letter lands when wheels are set in motion for the customer to leave?

Customers enjoy a healthy relationship with their insurer throughout the year (84% very satisfied or satisfied) but it all seems to go wrong once the customer sees their renewal premium jump: those who decide to switch are suddenly left much less happy with their now previous insurer (53% very satisfied or satisfied). The impact is arguably bigger than that though: it’s also much less likely the insurer can win them back after they have left as the situation has left the ex-customers significantly less likely to recommend their previous insurer, feel valued by and have trust in the insurer and get a quote at the next renewal. So there is a strong argument for insurers to do more to initiate or encourage discussion with customers prior to the renewal.

This seems likely to be played out even more over the coming months with women drivers who see their premiums rise considerably as a result of the introduction of the gender directive which will remove the ability for insurers to use gender as a factor in pricing.

Then there’s the 5% of customers who take out a new, cheaper policy with the same insurer via a comparison site. A quirk of the system, but how is that meant to leave customers feeling towards their insurer?

The renewal merry-go-round makes it hard for insurers to retain customers and turn them into profitable ones. Most people do claim to switch because of price (83%). But how wise is it to encourage people to switch based on price? Those who switch because of price are less likely to have positive views of their current insurer than those who switch because of better policy coverage, being made to feel like their policy is tailored or perceived better service/staff (admittedly some of these base sizes are small).

But do people really just mainly switch on price? No. Of those claiming to switch because of price, 47% claimed they switched to the insurer with the cheapest quote but 46% switched to the cheapest quote from an insurer that was acceptable to them. This certainly applies to my renewal journey; I didn’t want to switch to the brand I hadn’t heard of. So in this commoditised market, brand still has a key role to play.

And what about service and product? The amount of switching suggests that insurers are not doing enough to differentiate themselves. As well as strong performance on claims (the moment of truth for the insurer), insurers need to offer more innovative, compelling products that encourage people to stay (eg. multi-product bundles that do not encourage people to pay for products they do not need as with packaged current accounts but which avoid people having to double up on things like legal expenses insurance).

Perhaps the renewal merry-go-round and lack of trust in the industry leaves the door open for one of the new entrants such as Virgin Money or Tesco Bank, brands that offers something different such as The Co-operative, mutuals such as Nationwide or brands with a more differentiated brand positioning such as MORE TH>N to steal a march with a novel approach.