Why Are Annual Insurance Renewal Prices So High?

June 25, 2024

It’s that time of the year when I need to renew my car insurance and once again I’ve been disappointed by the renewal quote that came in. It was well over 50% higher than the best one I got off a comparison website. To have to then ring up and cancel the renewal and listed to a pre-recorded message with someone prattling on for over two minutes about things that had no relevance to me. If your automated system asks me why I was calling and I said “cancel renewal”, why make me listen to marketing speak which I have no interest in as a soon to be former customer? It’s like you have asked people to design various parts of your telephone system with no one programming the sequence to allow people to flow through more quickly. Thank goodness for unlimited minutes …

Before I was put through to an advisor, I was asked for details of my current policy number, date of birth and the numbers from my postcode to confirm who I was, So cue another sigh here when I got through to be asked for the same information again…  Another example of your automated systems not being integrated with your customer training manual….

So why do insurance companies purposely charge such high renewal quotes?

1. Customer Inertia and Loyalty:

  • Loyalty Penalty: Insurers may count on customer inertia, assuming that existing customers are less likely to switch providers due to the hassle of changing policies. As a result, they might offer higher renewal quotes.
  • Lack of Shopping Around: Many customers do not compare prices at renewal time, allowing insurers to increase premiums without losing too many customers.

2. Pricing Strategies:

  • Initial Discounts: Insurance companies often offer significant discounts to attract new customers, making new quotes cheaper than renewals. These introductory offers may not be available at renewal time.
  • Price Optimization: Insurers use complex algorithms to adjust prices based on customer data and perceived willingness to pay. Customers who have shown a pattern of staying with the same insurer might receive higher renewal quotes.

3. Risk Assessment:

  • Updated Risk Profiles: Over time, an insurer may reassess the risk associated with a policyholder based on claims history, changes in personal circumstances, or broader market data, leading to higher renewal premiums.
  • Market Conditions: Changes in the overall market, such as increased claims in a particular area or changes in regulation, can lead to higher premiums for renewals.

4. Administrative Costs:

  • Cost of Customer Acquisition: Acquiring new customers often involves marketing and promotional costs, which can be offset by offering lower initial rates. These costs are not present for renewals, allowing insurers to raise prices.
  • Policy Adjustments: Renewing a policy might involve additional administrative work, such as re-evaluating coverage needs or updating personal information, which can be factored into the premium.

5. Behavioral Economics:

  • Anchoring Effect: Customers may be anchored to their initial premium and not notice incremental increases over time, allowing insurers to gradually raise rates.
  • Perceived Value: Some customers may perceive staying with the same insurer as more valuable due to perceived continuity of coverage or customer service satisfaction, justifying a higher price.

6. Regulatory Factors:

  • Regulatory Changes: Changes in insurance regulations or requirements can impact premium prices, sometimes more noticeably after changes in laws.

The customer service person asked me why I was not staying with the company, so I asked her to guess; she got it spot on – price.  She kindly offered to see if she could make any adjustment in my quote, so I thanked her and said it was too late. Do come back to us in the future she said as she rang off. That is entirely possible next year when i potentially come up in your system as a potential new customer…

 

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