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Consumer trust in car insurers is lower than ever. How can insurers respond?

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In December 2023, Which?’s Consumer Insight Tracker found that customer trust in insurers was at an all-time low. Only 21% of consumers said they trust insurance companies to act in their best interest, while 44% don’t.

In an even more recent survey (April 2024), Fairer Finance found that trust in insurers is still low. Car, home, and travel insurers are among the worst affected.

Why is it that customers no longer trust insurers? And what can insurers do about it? In this article, I focus specifically on car insurers.

Car insurers, more than most other insurers, have always suffered from a problem of trust. That’s because car insurance is a “grudge” purchase that customers are legally obliged to make.

While the crisis of trust may be particularly acute in 2024, it’s not exactly a new problem. In 2019, for instance, YouGov found that nearly a third of car insurance customers wanted to leave their provider. The level and cost of coverage were the two biggest reasons for this.

So why is trust now lower than ever? There are two main reasons:

1. Premiums are at their highest on record

Price is the first and most important factor affecting customer trust right now. According to Confused.com data, prices have increased by £284 (or 43%) in the 12 months to Q1 2024. The average price for annual cover is now £941, up from £538 in Q1 2020.

Understandably, customers aren’t happy. 43% of UK drivers claim they’re paying more for their insurance than ever. And only 15% are satisfied with the amount that they pay.

Yet insurers are hardly to blame. According to EY, UK motor insurers reported a loss-making net combined ratio (NCR) of 109% in 2022, driven by high inflation and lagging premium increases. That means that, for every £1 insurers make, they spend £1.09.

While confirmed data isn’t yet available for 2023, EY forecast that the situation is likely to have been worse still. EY expects the NCR to be 114.6%, again due to high inflation, including high material and claims costs. This is the worst rate since 2010.

Insurers are feeling the pinch. But customers are unhappy that they’re having to pass some of the cost on—particularly as they’re paying more during the cost of living crisis.

As such, customers typically experience negative feelings—and often shock—when they renew. According to the Office for National Statistics (ONS), inflation peaked at 10.5% in December 2022. So, it’s difficult for customers to understand how prices increasing by 43% are justified.

However, consumers don’t see the reasons behind the increases. They’re often not aware that insurers are facing higher costs, too.

2. The number of complaints about claims—a key part of the customer experience—has increased

Another aspect of motor insurance that has caused a significant drop in customer trust is the claims experience. Fairer Finance’s study shows that 25% of unhappy customers cite difficulty managing a claim as their reason for dissatisfaction, the second largest factor overall.

The Financial Ombudsman Service (FOS) data shows that complaints about motor insurance rose by 50% between Q1 2022 and Q1 2023. Motor insurance is now the third most complained about financial product (after credit cards and current accounts).

The complaints that increased the most were those relating to delays in settling claims, which increased by 90% from 2022 to 2023. This was despite insurers fulfilling 99% of motor insurance claims.

The FOS identifies three main reasons behind this increase in claims-related complaints:

  • A rise in insurers delaying paying out on claims
  • A decrease in the availability of contractors, which has affected the speed of repairs
  • A decrease in the ability of contractors to source materials

Fundamentally, these factors are due to continuing supply chain issues since the pandemic. Again, this is a factor out of insurers’ control. Yet, it doesn’t make it any less inconvenient for customers.

The claims process greatly impacts the overall experience of car insurance. Typically, there are two major moments when customers interact with insurers: renewal and claims (assuming they need to make one).

But with increased renewal prices and delayed claims, both moments are proving unsatisfactory. Without a positive experience, it’s hard for customers to trust insurers.

Yet there’s an interesting finding in Fairer Finance’s study about claims and customer trust.

“Those who have made a claim in the last three years are more trusting than those who haven’t,” Fairer Finance says. “Those who have claimed will probably have had their claim approved and so trust their insurer more on the basis of that positive experience.”

So, customers are unlikely to trust insurers unless they give them a reason to through managing their claims well. But most customers won’t regularly make claims, so it will be difficult for insurers to get the opportunity to demonstrate their value.

Since Which?’s December 2023 study, consumer trust has marginally increased, perhaps due to the slight drop in premiums. Customers remain unhappy with motor insurers, but insurance is mandatory for UK drivers.

So, are there any real consequences to insurers, or is it business as usual? I see two main consequences of low consumer trust in car insurance:

1. If consumers feel the price of car insurance is unfair, they might change their driving habits

Based on our data, cost is the main factor motivating customers to change insurance providers. When customers receive a renewal quote from their current insurer, they may shop around to get a better deal. Even after the general insurance pricing practices (GIPP) rules, customers can still save £90 on average by shopping around (according to our car insurance price index).

However, in the face of unprecedented costs, some customers may decide to re-think driving. 

Clearly, going uninsured is illegal, and most people wouldn’t entertain the thought. But according to research from The Green Insurer in December 2023, more drivers are considering doing so. 7% of drivers admitted to driving uninsured, while 6% said they were likely to do so in 2024 due to high premiums. 

Many drivers are also considering changing their driving habits due to increased costs. 15% of respondents to another survey by The Green Insurer said they’re considering giving up their vehicle entirely. 11% said they were “very worried” while 40% said they were “quite worried” that increased prices might force them to stop driving. 

There are other stories in the likes of The Guardian of people already giving up their cars due to costs. Instead, they’re using car-as-a-service alternatives like car clubs.

While consumer trust is tightly linked to premiums, it’s difficult for insurers to take drastic action. Premiums are rising due to factors outside their control. 

2. Customers don’t distrust all insurers equally—and may switch for a better experience

One of the most important differentiating factors in insurance is customer experience. If prices are similar, the customer will look at the trustworthiness of brands (through sites like TrustPilot) to determine who to buy from. 

Fairer Finance’s data shows just how differently insurance brands are perceived. The best-performing brand has over 92% trust, while the worst has less than 65%. This is a big difference, and it suggests that the impacts of this crisis of trust won’t be the same for every insurer.

But what factors are responsible for this difference? Fairer Finance found a strong correlation between the respondents who “strongly agree” they trust their provider and those who chose it because of good reputation. Conversely, it found a negative correlation between those who strongly trust their insurer and those who chose the cheapest insurer on a comparison site.

From this data, lower prices don’t seem to always equal greater trust. While premium rises are mostly out of insurers’ control, enhancing the customer experience is not.

Most drivers will continue to pay for car insurance, despite the increased cost—simply because they have to. They’re unhappy about it, but car insurers are in a difficult position.

So what action can insurers take to improve consumer trust?

1. Insurers can communicate why costs are increasing for customers

Part of the reason for dissatisfaction with insurance premiums has been that customers couldn’t understand why. When prices increased in 2023, many customers opened an email to see an increase of over 50%.

For instance, insurers could have clarified why premiums reached these levels to soften the blow. Instead of simply sending a renewal quote, insurers can warn customers about potential price increases before they happen, even throughout the year. Some insurers did this, but not all.

The sad reality is that many customers think insurers are profiteering. They won’t have seen the data showing how most insurers have made a loss. They may not have heard about the impacts of GIPP or the increased costs of labour and energy that have affected the industry.

Insurers are fighting an uphill battle in customer perception.  For instance, many car insurers issued a refund during the COVID-19 pandemic, due to reduced driving. While this was a nice surprise for consumers, the news of rising premiums tends to stick in the memory more than these positive experiences.

2. Insurers can provide a deeper engagement with their customers

Customers typically interact with insurers once—or maybe twice, if they have an accident—throughout the year: at renewal and claims. Both of these have recently been negative experiences for customers, as Fairer Finance’s study made clear.

One way for insurers to improve the perceived value of their cover is to deepen and multiply their interactions with customers. This way, customers don’t associate insurers with just these two (often negative) experiences.

It’s something that other kinds of insurers are doing. For example, Vitality offers incentives for healthy living as part of its health insurance cover. Other insurers and price comparison websites give customers a regular free coffee or a free Greggs (as we do at Confused.com).

This makes consumers feel like they’re getting extra value from the engagement throughout the year. This way, the insurer becomes a more positive part of the customer’s everyday life. Of course, a free coffee is not enough to overcome customer frustration with higher premiums. But these positive interactions with insurers shouldn’t be underestimated.

Nor should we underestimate the impact of improving the customer experience overall. As I explored in another article on the future of customer experience, brands are already using technology such as AI to reduce claims processing times. As delays in claims are a regular source of customer complaints, this could be an important factor in improving customer trust.

3. Insurers could offer more flexible products to improve pricing

In the face of increased premiums, some customers are considering not driving at all. Instead of letting this happen, insurers can continue to offer alternative products that may better suit these customers.

One attractive option for customers could be more flexible products. If people don’t drive a lot, they could use pay-per-mile policies instead. This way, they don’t need to feel as though they’re paying for cover they don’t need.

Insurance policies can be flexible in other ways, too. Customers could select what sort of cover and service they want. For instance, they could choose a basic level of customer service in exchange for lower prices, or coverage for only a set number of miles.

Such alternative products could solve two problems for insurers and customers. Firstly, it could in some cases be a route to reducing premiums. And secondly, it can show that insurers are actively looking to find better, more appropriate solutions for all their customers.

At Confused.com, we know we have an important role to play between customers and insurers. Most customers now use price comparison websites (PCWs) such as Confused.com to search for, compare, and buy insurance.

We’re proud of our role in giving customers easy access to competitive prices. Our service empowers customers to compare their renewal quotes to other deals and potentially save money.

We also regularly collect customer feedback, which we can pass on to our insurance partners to help offer better products.

High inflation and supply chain issues mean it’s a difficult time for insurers as much as for customers. On the one hand, they’re facing increased costs, and on the other disgruntled customers.

But there are ways that insurers can improve the way consumers feel about them. For instance, they can create more interactions with customers, build more flexible products, and communicate transparently to customers about price rises.

Follow our analysis and discover more about what we do at Confused.com.

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