Compete finds key consumer segments making decisions based on price transparency provided
by emerging insurance distributors
Boston, MA, February 11, 2002 — Compete, Inc., an advisory
services firm that delivers customer and competitive intelligence based on the industry’s
foremost pool of consumer behavior data, has found that consumers are increasingly
emphasizing price over brand attributes when selecting an insurance carrier. Compete shows
that although traditional insurance carriers have succeeded at attracting consumers to
research and manage their insurance policies online, insurance distribution sites have
encouraged a significant portion of consumers to select their insurance policies based
almost exclusively on price.
Drawing from the clickstream data of more than 10 million
active Internet users, Compete analyzed shifting consumer preferences and trends within
the property and casualty insurance market from September to November 2001. Segmenting the
market between Carriers who underwrite insurance policies, who channel customers to
carriers’ insurance policies, such as InsWeb, Quotesmith, Insurance.com and Answer
Financial, Compete examined the demographic composition, usage and cross-shopping patterns
of insurance seekers to diagnose the changing channel dynamics in the insurance industry.
“By minimizing direct contact with insurance carriers,
distribution channels compromise the value propositions that allow the carriers to
differentiate themselves,” according to Derick Sutton, Vice President of Advisory
Service for Compete. “Insurance carriers need to discourage price focused consumer
behavior and begin developing deeper, service-based relationships that lessen the effects
of price sensitivity over time.”
The evolving insurance distribution channel
Compete’s analysis confirms that the Internet has developed
into a critical customer channel in the insurance industry; however, data reveals that the
increased traction of distribution sites has begun to siphon direct customer contact away
from leading insurance carriers. InsWeb, the largest distributor attracted nearly 400,000
monthly unique visitors over the timeframe monitored, nearly 60% greater than carrier
sites Allstate and State Farm, who each averaged under 250,000 visitors per month.
Additionally, newer distribution sites, while not attracting as many monthly consumers as
InsWeb are growing at rates faster than those seen among carriers; Quotesmith,
Insurance.com and Answer Financial grew 19%, 50% and 137% respectively, compared to an
average traffic decline of 1.2% amongst carrier sites.
Compete also shows that consumer behavior at carrier sites
can be categorized into two primary activities: policy research/quoting and account
management. Excluding homepage views, nearly half of intrasite pageviews were directed
toward customer service and account management sections during November. In particular 46%
of Allstate and 45% of Nationwide’s activity was dedicated to account management during
November. Furthermore, customers who accessed online account management and customer
service functionality demonstrated higher visitation frequency, exhibiting repeat visits
within the month at a rate 12% higher than distribution sites, revealing a new segment of
customers with unique insurance preferences and needs.
Although the majority of insurance policies continue to be
purchased through the traditional distribution channel, carriers are beginning to use
online tactics to influence consumers’ ultimate purchase decisions by facilitating quote
inquiry and access to policy and agent details. And while carriers are not attracting
consumers at the same level as distributors, they are successfully attracting a segment of
users who demonstrate strong research and shopping behavior. Progressive, Nationwide and
Allstate garnered quoting activity representing 51%, 42% and 35% of their non-homepage
pageviews, respectively, and 10% of Allstate’s pageviews were directed toward offline
agent information. Further, the average number of pageviews per visitor on carrier sites
is double that of distribution sites, indicating that consumers who research policies on
carrier sites are exposed to carriers’ unique service-oriented propositions, and that this
impacts their policy selection.
Price versus brand preferences
Compete’s analysis of consumer demographics and user flows
in and out of insurance sites, an indication of cross-shopping behavior, underscores the
concentration of these two distinct consumer segments. During the months evaluated, three
out of the top five destination sites from InsWeb were to competing distributor sites,
whereas the top four insurance destination sites from GEICO were to competing insurance
carriers. These patterns suggest cross-shopping behavior for the two segments, each with
unique preferences: price shoppers who leverage distribution channels to gain
comprehensive pricing knowledge, and brand shoppers who research carriers based on their
association with trusted insurance brands. Further, demographic differences indicate that
distribution sites attracted 7.4% more visitors from households reporting income over $60K
per year and 8.5% more visitors over the age of 35 as compared to insurance carriers.
“On one hand, distributors expand the market reach for
carriers by broadening their channel,” said Sutton. “On the other hand,
distributors channel customers to the low-cost provider more often than not, exacerbating
price sensitivity and policy churn. We see two distinct customer types emerging in the
insurance market: churn-prone, price-focused purchasers who view insurance merely as a
commodity product, and service-oriented, brand-focused customers who perceive their
policies as a differentiated service. Clearly the challenge for insurance carriers is to
enable the latter, without jeopardizing their channel.”
Ultimately, the challenge facing insurance carriers is to
bridge the gap between the brand-focused customers they successfully attract and the
price-focused customers siphoned by distribution sites. Although few carriers are meeting
this challenge, Progressive emerges as an insurance carrier that has been able to
successfully bridge brand and pricing transparency. Progressive offers hassle free pricing
transparency to attract price-focused shoppers by publishing unbiased competitive quotes
on its homepage, and appeals to brand-oriented consumers with high quality account servicing capabilities.
While Progressive’s strategy to provide price transparency
has helped them sustain the most consumer traffic among both carriers and distributors –
over 475,000 unique visitors in November alone – only one in five quotes served on the
Progressive site are priced at or below competitive carriers’ quotes. This has enabled
Progressive to appeal to both consumer segments equally well. An analysis of destination
sites indicates that consumers actively keep Progressive in their purchase consideration set,
making it the only company to appear in the top five destination sites for both carriers and distributors.
Moving forward, distribution sites will likely introduce
customer service initiatives to infringe on carriers’ customer relationships, promoting
increased price sensitivity and encouraging policy churn. While many consumers will
continue to initiate their policies through price-based distribution sites, carriers can
mitigate the long-term impact of distributors by reinforcing their differentiated service
benefits to discourage churn, yet maintaining a vibrant channel for new customer growth.
Recommendations for the Insurance Market
Based on its analysis, Compete recommends that insurance carriers employ the following
strategies to more effectively attract and retain insurance customers:
-
Associate a relationship to each policy:
Reinforce branded customer relationships in which customers view policies as a
differentiated service versus a commodity. As more customers turn to the Internet to
manage their existing accounts, incumbent insurers have an opportunity to strengthen their
brand and service offerings to minimize long-term policy churn. -
Satisfy Consumers’ Need For Transparency:
Expedite the quoting process by giving consumers access to competing quotes. Transparency
instills an element of trust that insurance buyers seek — and will ultimately be achieved
through cross shopping activity and/or through a distribution site. Progressive’s strategy
to publish competitive quotes, indicates that carriers can encourage insurance buyers to
look beyond price. -
Recognize dynamic consumer behavior:
Consumers do not display consistent purchasing and browsing behavior over time. As
consumer segments adopt different behavior in regards to their insurance needs, carriers
should recognize and monitor these trends to reduce consumer defection as well as detect
immediate acquisition opportunities.
