Drivers Put the Brakes on Their Car Insurance

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The Geico Gecko may be cute, but customers' satisfaction with their car insurance policies is getting ugly.

We’ve mentioned how consumers have little confidence in their health insurance. So it’s probably no surprise their opinion of car insurers is also screeching to a halt.

A new study [PDF] by consumer research firm J.D. Power and Associates measured customer satisfaction with auto insurance companies in five areas:

  • interaction
  • policy offerings
  • billing and payment
  • price
  • claims

What they found: Compared to last year, overall satisfaction dropped a whopping 30 index points compared with 2009 – from 807 down to 777 on a 1,000-point scale.

Most of the drop was due to just one factor: price.

The study found that 22 percent of driver suffered a premium rate hike, compared with 17 percent in 2009. Even worse, six in 10 policyholders said they received no advance notice of those hikes from their insurers.

“Now that the market has stabilized, consumers are feeling more in control of their finances and have become more aware of and sensitive to the rate increases that have started to occur since the recent recessionary period,” says Jeremy Bowler, senior director of the insurance practice at J.D. Power and Associates. “As a result, customers are considerably less satisfied with their insurer and their rates, and have begun shopping for new insurers at unprecedented high levels not seen since prior to the recession.”

So which company rated the highest? Was it the Geico Gecko? The Good Hands People? No, it was Amica Mutual, founded in Rhode Island in 1907.

California dreaming?

Meanwhile, on the other side of the country, the state of California was devising its own solution to the high cost of auto insurance.

Last week, California legislators strengthened and extended something called the Low Cost Auto Insurance Program, which offers a cheap, bare-bones car insurance policy to low-income motorists with good driving records – at no taxpayer cost. Even though the premiums are less than $400 per year, that’s enough for the most basic liability coverage. In fact, the law requires premiums cover all the claims paid out under the program.

“The low cost auto insurance program is a win-win solution offering real help to low-income Californians without costing the public a dime,” says Douglas Heller, Executive Director of Consumer Watchdog, a nonpartisan nonprofit organization. “By signing this bill, Governor Schwarzenegger will allow those who are struggling in this brutal economy to afford car insurance and keep the roads safer.”

About 55,000 Californians have joined the program, which caps individual income at $27,075 (or $55,125 for a family of four) and the value of the car at less than $20,000. What they get: coverage for $10,000 in bodily injury per person, $20,000 per accident, and $3,000 in property damage.

The Low Cost Auto Insurance Program began in 2005 and has gradually expanded across California. Since California is often first with consumer programs, is it inevitable this program will expand across the country?

Gen Y behind the wheel

Back to the The J.D. Power study for a moment. It also uncovered some intriguing trends among young drivers, specifically Generation Y (those born between 1977 and 1994)

  • Gen Y customers are more critical of their insurance providers, compared with their parents and grandparents. In particular, they expect to be able to reach a service representative immediately, and they want those representatives to deliver clear explanations of their insurance policies.
  • Baby Boomers (those born between 1946 and 1964) tend to place a great deal of importance on traditional communications from their insurer, such as a new customer welcome kits, newsletters and magazines. But Gen Y customers are more concerned with accessing their policy information online.
  • While website usage among Baby Boomers is increasing, only 40 percent of Baby Boomers report using their insurer’s website to review or make changes to their policies – compared with 60 percent of Gen Y customers.

While J.D Power makes the obvious prediction that online services will become even more important to car insurers, the company also predicts those companies will soon write their own smart-phone apps. Is the day coming soon when you don’t call your insurance agent, but you use you phone to file the entire claim?

Stacy Johnson

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