Lots of insurtech start-ups in the motor premiums market have been busy adding all kinds of rerwards and treats for their policyholders. It’s true that there’s more to car insurance than just price, people want to feel looked after especially when things go wrong. But new research suggests that many consumers are a bit lukewarm when it comes to the many bolt-ons that are increasingly being added to proposal forms, when shopping online for cover.
Research by behavioural science experts Decision Technology (Dectech) has found that motor insurance customers are less likely to purchase deals when offered more paid-for add-ons by providers – contradicting common assumptions that consumers are increasingly looking for insurance providers to offer an extensive range of extras.
Dectech’s new report Engine for Growth, explores how consumers respond to being offered add-ons with motor insurance deals. In the randomised controlled trials conducted for the report consumers were offered either 4, 6, 8 or 10 add-ons to choose from during the insurance purchasing process. Those offered more add-ons were on average less likely to purchase the final deal – resulting in lower total revenues.
According to Dectech, this trend can be explained by people’s cognitive bias towards simplicity. Consumers are more likely to feel overwhelmed when given greater choice and will therefore feel more uncertain about the final deal they are offered – and hence be less likely to purchase. Decision fatigue, where consumers make poorer decisions when they have to make lots of them, may also play a role.
“This presents a win-win opportunity. Regulators have shown willingness to investigate add-ons in the past and may decide to restrict what providers can offer if further research confirms offering lots of extras causes decision fatigue and negatively impacts consumer outcomes. But in our view, it is clearly in the interest of both insurers and regulators for customers to be offered a smaller, optimised range of add-ons.”
Dectech’s research, which explored the different types of add-ons consumers are interested in and how different demographics behave, also found that consumers going via price comparison websites are almost twice as likely to purchase deals with add-ons than those going direct to providers.
Ancillary insurance cover options, such as windscreen and breakdown cover or courtesy cars, are by far the most popular add-ons. Interestingly, perceived innovation was not a key purchase driver in and of itself when it came to add-ons – add-ons that were rated as more innovative were not necessarily the most popular. Dectech suggests that insurers should consider offering more novel add-ons such as maintenance alerts and safe-driving rewards for free, rather than selling them as extras, as they provide an opportunity to make customer engagement more frequent – helpful for an industry that struggles to engage with customers beyond renewal.
Young people aged 18-34 and those with children were the groups most likely to purchase insurance deals with add-ons, likely due to time pressures and a desire for convenience. However, one finding that may interest providers is the evidence that renewing customers are more enthusiastic for add-ons than switchers – providing an easily targetable audience for on selling.
Dr Henry Stott, Director of Decision Technology, said:
“Our extensive research into how consumers behave when offered add-ons with motor insurance shows that there is appetite for extras, but providers need to be smart about how they sell them. Insurers should target a smaller, tailored range of add-ons at keen audiences. This means optimising price efficiencies on more traditional add-ons, while being selective about offering more innovative add-ons, and being sensitive to the potential advantages of targeting add-on offers at loyal renewers and the bulk of consumers who come via price comparison websites.”
So much about car, van and motorcycle insurance is stuck firmly in the 1990s. For example offering 365 days a year, EU-wide breakdown cover on many classics (often only used for five months of the year) isn’t as valuable as offering on-demand cover for a friend, or fellow club member to have a quick spin on a sunny Sunday. These are the real world, lifestyle related insurance scenarios, that many brokers and insurers are simply failing to grasp.
Where are the rewards like shopping vouchers, theme park tickets or a month’s free cover for those who remain loyal to their insurer for say five years? Not really in plain view is the answer. So many add-ons are actually perceived by consumers as things which should be standard – like getting you and your car home after an accident.
These are the issues that the industry needs to address before getting all excited about safe driving scorecards, smartphone apps and people winning bonus points for sticking to the speed limit in a contraflow. None of these things mean much if you still feel swindled when it comes to renewal time and your premium has mysteriously gone up by £45 depsite a claims-free year of driving.