Project Loomis - Motor Insurance Part 2
Premium Wars - Winners and Losers
The second installment of Ignite's Motor Insurance "Project Loomis" study focuses on the changes motorists have experienced themselves at their last premium renewal. If you missed part 1 which focuses on who is insured with which provider and swithcing patterns over the past 5 years you can catch up here
2 in 3 Irish motorists found that their premiums increased at their last renewal, with 23% having no change. A lucky 11% found that their premiums had actually decreased.
The average extra cost faced by the 2 in 3 motorists who had premium increases was just under 20%. For those who had a reduced premium they saw a saving of just under 14%.
The overall net movement across all motorists resulted in the insurance industry successfully extracting an additional 14.52% in premiums paid at last renewal. With major challenges in commercial models for motor insurance providers in Ireland (rising costs to insure and recent significant fall in premiums charged), this increase will go someway towards stabilising the industry. However, premium inflation will inevitably sharpen the focus of motorists and consumer interest groups. How consumers react, and how insurers mange this reaction will be key at the next renewal period for motorists, but more on that a bit later. First let's look a bit closer at who is winning and losing most as a result of the recent premium increases.
Who is hurting most and least
When we look at which motorists are more and less likely to have experienced a premium increase, we can see that the pain has been relatively evenly distributed. There is one notable exception where those aged 25 years and above are more likely to have seen premiums increase compared to 18-24 year olds. However, it must be factored in that 18-24 year olds are coming from the highest base of most expensive premiums to start with and as such the scope for increases may not be as realistic to secure as with other age groups. These younger drivers are also most likely to have being driving for a short period of time and therefore may not have many years of comparison to draw on and cite an increase or decrease.
If we look at which of the main insurers are more or less likely to have secured increases among their customers at last renewal, we can see that 123.ie customers are most likely to have been subject to premium increases with Aviva customers less likely to have seen their premiums increase.
Delving into the actual average increase or decrease motorists told us they experienced with each of these providers at their last policy renewal we can see that AIG are more likely to have slightly higher percentage increase in premiums (23%). AA Car Insurance have the biggest average decrease (16%), but it must be noted that all providers are relatively tightly clustered overall.
Although some insurance providers have been more "successful" at managing premium increases than others, this does obviously depend on the risks being insured. Consumers will ultimately start to develop a keen sense of where premiums are rising faster across the market. Short earned financial wins for insurers who are securing larger premium increases may lead to longer term reputational challenges for providers who get too far ahead of natural industry inflation patterns.
With such widespread price increases, the winners currently are clearly the insurers and the losers, motorists, but how long will this be the case and how can insurers keep motorists wanting to do business with them over the competition?
Winning With Motorists Tomorrow
Winning and retaining customers for insurance providers in the coming years will be different than it has in been in recent years. As the commercial necessities of the industry lead to increasing premiums, marketing will be the prime asset to drive sustainable growth in managing how motorists view each insurers value for money proposition.
As marketers, when consumers change their relationship with a category or a brand, we need to reformulate how we engage with customers, and we need to think differently about how we encourage our brand to be the preferred choice. This transitional crossroads is exactly where motor insurance finds itself in 2016. We are moving from a consumer mindset of seeking out the best reduction, to a mindset of seeking to minimise the size of the premium increases they face. What value means and how value is calculated in motorists minds is changing. Insurers need to position themselves favoruably as motorist value mindset shift takes hold, and insurers need to think hard about how best to put forward a compelling value proposition which appeals to motorists in a climate of increasing premiums. With premium inflation coming strongly into mass consumer consciousness for motor insurance, the transition which motorists are undertaking is moving from one of gain (normalised repeated premium savings year on year) to one of pain (seemingly inevitable premium increases for some time).
Motorists will adopt a more defensive and negative disposition as they seek to mitigate their own risk in having to pay more of an increase than needed. How insurance brands mange this psychological transition will shape whether they are perceived to be part of the problem or part of the solution. The impact which an upward trajectory in premium pricing has on motorists in terms of decision making and how they engage with the category is the biggest challenge facing the industry as it moves to put it's sector on more sustainable commercial footing.
The new landscape will require foresight and understanding of how human decision making will play out. Marketers will be either explicitly or implicitly responsible for how this plays out across the various motor insurance brands in the marketplace. Those who get on top of this new landscape will be better equipped to win, those who do not, my find themselves in a difficult place with premiums increasing and their base of customers eroding with little room for maneuver as motorists question what value do they actually get beyond price.
The third and final installment of our Project Loomis Motor Insurance study will explore the impact various pricing mechanics will have on consumer decision making.
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