A recent study by J.D. Power reveals that auto insurance customers in the United States are grappling with higher rates and decreasing satisfaction. As insurers struggle with soaring loss ratios, the industry has raised rates by an average of 15.5%, leading to a significant drop in customer satisfaction. According to the J.D. Power 2023 U.S. Auto Insurance Study, SM released today, satisfaction with auto insurance has experienced the largest decline in the past 20 years, with a 12-point drop on a 1,000-point scale. The primary factor driving this decline is customers’ dissatisfaction with the price they pay for insurance, which has decreased by 25 points this year.
Rate Increases and Economic Realities Impact Customer Satisfaction
The study highlights that nearly one-third (31%) of auto insurance customers reported rate increases during the past year, while insurers faced record high loss ratios, losing an average of 12 cents on every dollar of premium collected in 2022. This economic reality has left insurers with little choice but to pass on the cost burden to customers through rate hikes. Auto insurance price increases are three times higher than the average across other categories tracked by the Consumer Price Index, with rates surging by 15.5% compared to an average of 4.9%. Consequently, overall customer satisfaction with auto insurance providers has decreased from 834 to 822 in the past year.
Usage-Based Auto Insurance Programs Gain Popularity
In response to rising insurance rates, more customers are turning to usage-based insurance (UBI) programs, which utilize telematics data to determine policy costs based on driver behavior. The study reveals a significant increase in the adoption of UBI programs, with 17% of auto insurance customers currently participating. Among new customers, UBI participation rates stand at a remarkable 26%. Customers participating in UBI programs reported higher satisfaction with price, with an average satisfaction score of 59 points higher than non-participants.
Insurers Can Mitigate the Negative Effects
Mark Garrett, director of insurance intelligence at J.D. Power, suggests that insurers can take steps to mitigate the impact of rising costs and improve customer satisfaction. Proactively offering customers UBI alternatives, transparently communicating necessary rate increases, and consistently delivering on brand promises can help insurers maintain trust and offset the negative effects of increasing prices.
Key Findings of the Study
The study offers several key insights into the current state of auto insurance:
Surging rates impact satisfaction: Auto insurance price increases are significantly higher than the average consumer price index, leading to a decline in overall customer satisfaction with the industry. Customer satisfaction with the price of their policies has decreased by 25 points.
Price increases affect customer groups differently: Customers who rent their residence, do not bundle home and auto insurance, live in single-car or single-driver households, are open to switching insurers, or have a lower perception of their insurer’s trustworthiness experienced a more negative reaction to price increases.
UBI adoption on the rise: The popularity of usage-based insurance programs has more than doubled since 2016, with 17% of auto insurance customers participating in such programs. Customers enrolled in UBI programs reported higher satisfaction with the price compared to non-participants.
Challenges with UBI data accuracy: While UBI adoption is increasing, concerns about the accuracy of data collected by telematics devices have emerged. Only 38% of customers consider the information collected by UBI technologies to be “always accurate.”
Softening the impact of rate increases: Notifying customers in advance through their preferred channels, clearly explaining the reasons behind rate increases, and discussing available options such as UBI can positively influence customer perception. The magnitude of the price increase also plays a role, with a significant difference in satisfaction based on the amount of the increase.
Insurance Providers Recognized for Customer Satisfaction
The study also recognizes insurance providers that excel in customer satisfaction across different regions:
- California: Wawanesa
- Central: Shelter
- Florida: State Farm
- Mid-Atlantic: Erie Insurance
- New England: GEICO
- New York: New York Central Mutual
- North Central: Erie Insurance
- Northwest: The Hartford
- Southeast: Farm Bureau Insurance – Tennessee
- Southwest: State Farm
- Texas: Auto Club of Southern California (AAA)
- Usage-Based Insurance (UBI): GEICO, Progressive, and State Farm (tie)
The 2023 U.S. Auto Insurance Study, conducted for the 24th consecutive year, surveyed 41,437 auto insurance customers between January and April 2023. The study evaluated customer satisfaction in five key areas: billing process and policy information, claims, interaction, policy offerings, and price. This year, the study introduced a new national award category for UBI, along with diagnostics that assess UBI participants’ experiences with insurers’ usage-based auto products.