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Where is the personal auto market, and how did we get there?

By Jason Polayes  |  October 15, 2018

A few generations ago, it took some time to produce an auto insurance quote, but it was usually reliable. Today, under growing pressure from tighter margins and drastically lower conversion rates, many insurers may base the first quote on partial data that doesn’t generate the final rate—and manages to frustrate the customer.

This experience runs counter to trends that are transforming insurance as we know it:

Lightspeed graphic

Even as consumers and competitive pressures raise the bar:

  • A typical auto application may ask 20, 30, even 50 questions and take 15 minutes or more to finish. It can be even harder over the phone.
  • Thirty percent or more of prospects never make it through the sales funnel.
  • Another third are uprated after the initial quote, and more than half of those prospects will not purchase, based on Verisk client experience.

Some insurers use prefill data, but the process may still be considered slow and intrusive. Minute by minute, new business opportunities slip away. To get past this unhealthy state, it’s important to understand the history of how we got here.

The right call?

Many insurers control expenses through a strategy that leads to a series of quoted prices. Rate Call 1, the initial rate quoted by an insurer, often involves little data beyond what the applicant supplies and very little validation. The applicant may logically expect to pay this price after receiving the initial quote.

Then comes Rate Call 2. This quoted rate is often different and likely higher than the original quote, based on additional data obtained after the customer shows sufficient interest in a potential purchase. It’s also frequently an unpleasant surprise.

To be fair, insurers 50 years ago enjoyed greater sales success in a less competitive environment than today, when typical quote-to-bind ratios are now 25 percent and conversion (close) rates can be as low as 1 percent through comparative raters. The worse these metrics, the more acquisition costs per-policy. The winners are typically insurers that perform best by these measures.

Last century’s insurers also had far less data to sift through in setting rates and had lower transactional expenses to consider when giving a quote that might not even become a finalized policy.

Breaking away

The current state can feel like an inescapable reality for insurers that now take customers through two, three, or even more rate calls. But an upcoming white paper from Verisk will present a world in which Rate Call 2 may no longer be necessary.

This paper explores several key issues, including:

  • how insurers became vulnerable to InsurTech competition
  • how technology platforms are enabling a new, viable economic model
  • how early adopters of the one-rate auto insurance acquisition strategy—providing a single, accurate quote up front—will gain significant competitive advantages

One-rate auto insurance acquisition doesn’t mean abandoning basis underwriting and charging everyone the same rate. But what if an insurer could quote a more precise rate the first time, every time?

Watch for the white paper, Unlocking One-Rate Auto Insurance Acquisition, and learn about the new possibilities with LightSpeed from Verisk.


Jason Polayes is a senior product manager at ISO. You can contact him at Jason.Polayes@verisk.com.