A PAP is Not a Commodity: How to Make the Case

The personal auto industry is facing an uphill battle in terms of profitability, with less than 2% new consumer entrants each year, according to J.D. Power.

Today, the top 10 personal auto insurers in terms of market share write 72% of all business, compared to just 64% in 2000, J.D. Power reports. Two of the fastest-growing carriers—GEICO and USAA—have experienced particularly impressive growth thanks to not only massive advertising spends, but also personalized, consumer-centric marketing.

But consumer satisfaction with the personal auto insurance purchase experience hit an all-time low in 2018—and J.D. Power attributes the decline to not only a poor digital experience, but also inadequate explanations of the tools and resources required to understand insurance premiums.

In other words, “despite all the technology out there, where consumers are still feeling pain points is understanding auto insurance,” says Jean-Marie Lovett, president of MassDrive, a Boston-based independent insurance agency, and Bindable, a technology firm that supports insurance companies and their consumers.

“When you probe more, you realize many customers do not know what they’re buying,” Lovett says. “We recently sold a customer a homeowners policy, so we took a look at her auto as well, and her liability limits were 25/50. She didn’t understand that those low liability limits could put her assets at risk. She had no idea what kind of situation she was putting herself in.”

“There are still too many drivers on the road with low liability limits,” agrees Mike Crowley, vice president, Crowley Insurance Agency, Inc. in East Syracuse, New York. “I think a good chunk of that is the way the insurance world allows a client to buy the insurance on their own, without advice. Or, it’s agents who are just trying to sell a policy, and they’re not taking that adviser role seriously.”

In personal auto, that could be as simple as explaining why state minimum liability limits aren’t going to cut it in an increasingly litigious society that’s also facing higher medical costs. Even 100/300 limits might be too low for a parent with teenage drivers, for example.

“You need to be able to protect yourself,” Crowley says. “We probably change 99 out of 100 auto policies that come in our door. Clients just don’t understand the ramifications, and that’s where agents need to do a better job of educating when they’re selling policies.”

In 2019 and beyond, education must come in a very specific format in order for clients and prospects to pay attention. “The more independent agents can say, ‘Great—let’s adapt our strategy, let’s bring that value in and focus on what makes the independent agent unique,’ the more they’ll be able to make the case that they’re the ones who are really the advocates for the consumer,” Lovett says.

Already, proactive, digital communication is key for consumers who are accustomed to instant service and quoting in every other industry. “You have to really dig in and learn what the client wants, because there is such a wide range of how the client wants their proposal sent to them—email, phone, in person, text message,” Crowley says. “People want it the way they want it, and by not asking that question and not verifying timeframes, you can easily lose a good opportunity for new business.”

When you’re providing a quote, for example, “you have to provide the estimated time it’s going to take you, and make sure that’s OK with them,” Crowley suggests. “You need to discuss all those things up front, because you can waste a lot of time chasing something you’re not going to get because you waited too long—even if it’s just a day or two. If you don’t set that expectation or ask, they might assume they’re not going to hear from you, because there are probably enough people in the world that don’t even call them back.”

And that mindset shouldn’t stop after the quote and bind. “On the service side, you’ve got to change things in-house,” Crowley points out. “You can’t just cross your fingers and hope and pray that everybody pays their renewal.”

Crowley’s agency does a proactive PAP renewal review with every client about 60 days in advance. “We let them know some of the changes that are going on—just a head’s up that the rates are probably changing,” he says. “And this is before the renewal’s even processed, so we can’t even say for sure, ‘Your rate went up 6%,’ because we don’t know yet. But we ask them if anything’s changed, if there’s anything new in their household we need to know about.”

Each year, the agency sets its management system reports to alert staff when a PAP rate is increasing over a certain amount annually. “If it’s over X%, let’s look at it. We might not necessarily call the client and say, ‘Hey, we can save you $4 if we move,’ but at least we can make a note our files so that if they do call and complain, we know we already have an option and we can give it to them right away,” Crowley explains. “With something we don’t think is a big increase in the insurance world, clients can totally disagree. It’s a different set of parameters they look at.”

That’s another area where a little education could go a long way, because most policyholders don’t understand that carriers do not look kindly on price shoppers. “When people are jockeying insurance companies, moving every other year to another carrier, carriers are going to look at them and think, ‘You’re a bad risk,’” Crowley points out. “If you can say, ‘I just had two bad accidents, but I’ve been with you 20 years and I had no claims the whole time,’ a carrier is less apt to worry about the fact that you’ve had bad luck this year.”

Personal auto accounts for nearly $200 billion in direct written premium, according to the 21st Market Share Report from the Big “I,” which found that both independent agent carriers and direct writers enjoyed a 10% premium growth in 2015—the most recent year for which data was available. The independent agent channel maintained 31% of the market, while the captive channel shed 1% of its share.

“Independent agents have a good share of the personal auto market right now,” Crowley says. “The people that are buying direct on GEICO are the ones that might go buy on Amazon—all those big names are going to have a tougher time competing with each other. I don’t think our market share is going to change as long as there’s agents like us and a million more that make those changes and adjustments for their clients.”

Jacquelyn Connelly is IA senior editor.