Auto Insurance in the US: Cost, Customer Journey, Consumer Decisions & Pain Points

The first part of the research addresses the auto insurance market and provides some insights into the customer journey. There is a focus on the research and purchasing aspects of this journey. A breakdown of the costs of insurance and metrics in respect of the auto insurance market are included to provide further insight. With a survey finding 20% of Americans would rather slam their hand in a car door than shop for auto insurance, it is clear that the market is not meeting every consumer´s expectations. A survey completed in 21019 found that consumers think the market is complex, confusing, and expensive. It also found a lack of transparency. These themes are constantly referenced in articles discussing the auto insurance market, and as a result must be considered industry pain points.

The Cost of Auto Insurance

  • The average cost of auto insurance in the US is $1,548. This equates to $129 per month
  • When the auto insurance providers are evaluated the most competitive providers are USAA at $546 per six months, Geico, at $602, and State Farm at $647. The following graphic illustrates the average cost of six months auto insurance from the major players. Average Cost of Car Insurance by Provider
  • One of the determinative factors that contributes to the yearly premium is the age of the drivers. Age is considered to be a good indicator of risk. The average cost of annual insurance for a 16-19 year old is $5,023. This falls to $1,989 for 20-29 year olds, and $1,532 for 30-39 year olds. Insurance starts getting more expensive when the consumer hits the 80-85 year old group, rising to an average of $1,880. This data is illustrated in the below graphic. Average Cost of car Insurance Based On Age
  • In California and Pennsylvania, there is no difference in the premiums for men and women. In other states, the difference is less than 1%. This is of course the average difference between male and female drivers. The reality is a little different with males aged 16-19 paying more than $700 more than females of the same age.
  • The credit score of the driver also contributes to the premium cost following a finding by the FTC that those with lower credit scores have more accidents, that cost more than those with a high credit score. Traffic violations also have a negative effect, even a no fault accident, which adds on average $112 per year to the premium. A speeding violation will add around $380 to the premium.

The Customer Journey

  • A number of organizations have developed a customer journey map in relation to the purchase of auto insurance. Most are variations on a common model. There is some variation between the online and offline customer journey, with additional steps often required when purchasing the insurance offline.
  • The first step, awareness and discovery, is often skipped over as generally there are only two reasons why a consumer is considering auto insurance, to purchase new coverage or to renew current coverage. The gathering information phase sees the consumer conduct research to find the product that best meets their needs.
  • Most often the internet is used to facilitate the research process. For those using offline sources for this research, insurance advisers and brokers are most commonly used in this capacity. It must be noted that the increase in aggregators online, and the role they are taking in brokering insurance (across all categories, not just auto), has seen pressure mount on the traditional broker, who is struggling to compete.
  • Following the research phase, consumers enter the purchase phase. This sees them work through a decision-making process to decide their preferred insurer. Insurance is typically purchased online, directly with the brand, or through an insurance broker. The pain points, discussed in the second part of this research, are key in this decision-making process. They are effectively the consumers bottom line.
  • Post-purchase service must not be forgotten as this serves as a nursery for future purchases. Nurturing the relationship means it will grow and develop. Part of this process should include an analysis of the available consumer data and the creation of a personalized experience are being more important each day. The extent of the personalization may only be an occasional interest, industry, life stage or similar email but it is noted by the consumer.

Knowledge Gathering or Research

  • The knowledge gathering or research phase is typically one of the first steps in the consumer auto insurance purchase journey. This phase sees the consumer investigate a range of different insurance options searching for the best deal. Some have described the process as being like a funnel where a wide range of options and outcomes are funneled from a broad range of options to the one that presents the best price and terms and condition.
  • Most insurance purchasers conduct their research online. 70% of consumers take less than four hours to complete their research. In the initial stage of their research, the consumer will visit at least 13 different aggregator sites and 42 sites in total. Aggregators are most commonly accessed through online advertising. Sites are also accessed when comparing different competitors products on aggregator sites and occasionally through search results.
  • Aggregators allow the consumer to develop a basic understanding of the auto insurance landscape. By leveraging the information from the aggregator sites, more focused searches can be undertaken. An average of 41 further sites are visited to elicit the key details that are the pain points for the individual consumer.
  • On average, a consumer will visit nine different insurance brands in the course of their research, remaining on each site for less than four minutes.
  • Common terms for the initial search include “auto insurance rates” and the names of major brands. The sites that consumers pay the most attention to are those that have a range of general information in their introductory material. Messages like “New Customers Get the Lowest Prices” of “Switch and Save” have been found to get the most engagement as that is what the consumer is looking for at this stage of the journey.
  • A secondary search will use terms like “cheap car insurance in xxxx.” Searches of this nature are more likely to return unbranded products that focus specifically on the geographical location in question. As the consumer narrows down the options, they are more likely to consider and be swayed by “package” messaging offering savings across home, auto, and life insurance.

Influencing Consumer Decisions

  • Each generation has its quirks. Having an awareness, and using that awareness to create a more individual experience for a consumer will usually pay positive dividends. Gen Y, for example, are twice as likely to engage with an insurer than any other generation. Armed with this information, automated bot assistants start to become increasingly relevant. This increases the likelihood of establishing a connection with that generation.
  • Consumers are looking for onmichannel experience that is smooth and uncomplicated. Perhaps surprisingly, the channel of purchase is less important for 66% of consumers than a quick and easy process. Consumers have indicated that tailored, customized policies need to be explored, with 64% interested in premiums that acknowledge safe driving and 52% lower life insurance premiums based on a healthy lifestyle.
  • To emphasize the importance of a quick and easy process, 80% of consumers have indicated that they would share personal data if it meant competitive prices, quick turnaround, and priority service.
  • Consumers are happy to explore integrated proposals for multiple insurance products. Consumers are also looking for bundled options, with more than 50% indicating they would be interested in bundled services. These bundled services could include a car buying package.

Metrics Relating to the Consumer Decision-Making Process

  • For most consumers, the shopping journey can be short. 30% of consumers complete the purchase within one day, 30% of consumers complete the purchase after one day, but within a week, while 24% complete between one and two weeks.
  • Loyalty does count for something in the auto insurance market, with 56% of consumers loyal to an insurance brand. For 83%, considering only one to three insurance brands is the norm. This loyalty is predominantly prevalent in the older generation, with Baby Boomers 2.3 times more likely than Millennials to engage with a single auto insurance brand.
  • Younger generations are more likely to engage with social media as part of their research process, with Millennials 2.3 times more likely than Gen X or Baby Boomers to consider an insurance product that was advertised on Facebook. 38% of Millennials consider social media to be a great source for learning more about auto insurance.
  • 34% of consumers hear about insurance products from friends and family. This is especially prevalent among the Millennial population with 38% discovering and 36% assessing an insurance brand through interactions with friends and family. Often these conversations occur on social media.

Price as Pain Point

  • Price as a pain point in the auto insurance market can be defined as an area where there is a perception among consumers that the price of a particular auto insurance product is to expensive and the consumer is actively looking to explore alternative providers or products.
  • For the last several years, the price of auto insurance has been trending upward, and it appears to be fast approaching the point where price is likely to become a determinative feature. To a degree, the increasing number of options available outside of the traditional brands has contributed to this by increasing the market to a point beyond equilibrium where supply is starting to exceed demand.
  • What this means is that consumers will increasingly look to obtain better terms from providers in exchange for their ongoing service. The reality some providers are going to have to address is that there are increasing numbers of providers who are offering the same service at a better price or in some instances a better service at a better price.
  • The insurance industry is one that has experienced disruption in recent years from both aggregators and technology, and to a degree the next few years will likely be a period where there is a realignment of the market. Over time price will become less of a pain point as the market settles and new equilibriums around pricing are established.
  • One way that the industry is attempting to address pain as a price point also addresses transparency. Some players in the industry have looked to provide the consumer with more information around the factors that are considered when setting an insurance premium and the weight that is allocated to that factor. This at least provides some insight behind how premiums are set.
  • The industry in its attempt to offer better premiums for those that adopt certain anti-theft and safety features into cars. This presents as somewhat of an issue due to trade off between the technology and the price of any damage caused by a preventable accident. While these features are being sold as a solution to the issues around the price of insurance for certain groups, they have the potential to create a further pain point as the optional becomes the expected.

Transparency as a Pain Point

  • While consumers may be willing to agree to policies that are priced higher than other similar products, there is a need from the consumer for transparency from the provider that addresses the basis for the price difference. The insurance industry is laden with industry-specific jargon, and while other similar industries have looked for ways to minimize the impact on consumers, the insurance industry has been slow to act in this regard.
  • The complexity of the language is such, 97% of consumers were unable to separate at least one sports term from a list of insurance terms.
  • There is a certain level of distrust from consumers, which is partially fueled by the archaic language of the industry, and an underlying suspicion (or perception) from the consumer that the auto insurance industry starts from the position a claim should be declined. This has seen transparency evolve into a key pain point.
  • Transparency as a pain point started to gain traction back in 2016, when Valchoice revealed their latest study that found Americans shad overpaid auto insurance over the last five years to the tune of $101 billion. The study went on to find, 90% of consumers would have been better off if they had gone with policyholder-owned insurance company that paid a dividend to members.
  • One way that the auto insurance industry is attempting to address the lack of transparency, is through redefining the consumer journey, and actively seeking to personalize the experience so that all the expectations of the consumer are met. The foundation of the insurance relationship is mistrust, and the insurance industry is slowly realizing that the key to developing trust is transparency, so they are looking to address any potential issues a consumer has as part of this experimentation process.
  • The auto insurance industry has become proactive in detailing the different pricing options and what they encompass in an effect to address the lack of transparency with a number of contracts now setting out the exact cost of the insurance in a transparent way.
Glenn is the Lead Operations Research Analyst at The Digital Momentum with experience in research, statistical data analysis and interview techniques. A holder of degree in Economics. A true specialist in quantitative and qualitative research.

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