Lesson 1: Price

The first online sale of an automobile insurance policy occurred in 1999. Since that humble beginning, online sales of insurance policies have grown into a significant chunk of the insurance market. In 2016, with consumers and business owners confident about online purchasing, direct sales of small commercial policies have begun the same upward climb as personal lines did over the last decade.

What then are the lessons that small commercial insurance carriers can learn from the personal lines auto insurance experience?

The first lesson is simple: in an online market, people care deeply about price. We can see this clearly by looking at online insurers’ advertisements:

  • GEICO’s original commercials focused on price. Remember the wads of cash?
  • Progressive touted and still touts ways to save customers money.
  • Esurance’s ads explain how they save customers money.
  • Allstate, State Farm and other established carriers initially highlighted only their great service, but eventually they too had to create ads that addressed price savings as well as service.

The key for insurers moving to online sales is that price is going to be a significant element. To maintain profitably while offering a competitive price, insurers need to ask themselves the following questions:

  • Are my underwriting processes and cost structures optimized to reduce expenses across the board?
  • Is my pricing sophisticated enough to show me where I can and cannot lower prices?
  • Do I have a pricing strategy with both a competitive low price and upsell options?
  • Is my product strategy competitive in a more price-sensitive market?

In my next post I’ll look at a second lesson to be learned from personal lines insurance: customer focus.

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