Over the last several months, Zinsurance has been sending a mail survey to New York homeowners seeking their opinions on home insurance and their interactions with home insurers. At Zinsurance, we believe there is still a lot of room for improvement in the way home insurance is developed and delivered to the customer. We believe there are numerous inefficiencies and antiquated processes that can be eliminated to save consumers time and money, ensuring that they can receive a much higher combination of value and service than they receive today.
We sent two sets of 5,000 surveys to homeowners in the Second and Third Quarters of this year. The mailers contained a link to our online survey and a QR code that could also be scanned to point respondents to our survey website. We asked seventeen basic questions, and the survey generally took 5-10 minutes to complete. In return for participating, the respondents were provided with either a $10 Amazon gift card or the opportunity to donate to a Long Island charity of their choice.
The purpose of the survey was to understand where we can focus improvements in the home insurance buying process. Most of the results were not surprising, and the following are some of the key findings:
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59% of respondents would be comfortable buying home insurance on their own without an agent.
We are not surprised by this response. Our view is that home insurance is much more complicated than it needs to be. Many in the industry have strong incentives to keep it that way, but the customer suffers through higher prices. We believe that purchasing home insurance does not need to be a time consuming and arduous process. Many consumers would like a straightforward process where they can easily see their price without visiting an agent’s office or spending an afternoon on hold / answering questions from a customer service rep. Home insurance is like auto insurance in that most consumers just need simple, easy to understand coverage. For a large number of customers, the decision simply comes down to price. The majority of homeowners (excluding high net worth individuals) do not need exotic coverages or protection for scenarios that will rarely apply to them. It is not surprising that many consumers want the ability to take charge of their insurance buying process so that they can get a competitive price and protection without the hassle of dealing with a middleman.
On average, it would take at least a 24% savings to get most people to switch from their current home insurance carrier.
We asked the survey participants how much savings it would take for them to switch from their current carrier and provided options in ranges of 10% from ‘1%-10%’ to ‘over 30%’. The most common response was the ’20-30%’ range. The weighted average of all responses was just over 24%. This lines up with what we would typically expect for home insurance, which has a large degree of price inelasticity. It is not worth the time and effort to switch, especially when carriers/agents make the process exceedingly difficult, unless the percentage savings is significant. This is one reason home insurance has a remarkably high retention rate (typically over 90%), even though a high percentage of consumers could save more than 25% if they were willing to spend the 15 minutes or more that it would take to get a full view of the alternative options.
62% said they would be willing to buy home insurance from a newly formed company, if it saved them time and money.
Contrary to what the largest brand name insurers would expect, many consumers are simply looking for a simpler and easier alternative that will save them money. Large insurers spend billions of dollars a year on television advertising to promote brand names that everyone already knows. Newer ‘Insurtechs’ spend comparable amounts on pay-per-click advertising to drive business to their sites. These marketing spends are of questionable value and raise prices for all consumers. What most homeowners really want is an easier and less costly solution. They would be just as happy with a new company that makes this happen.
68% have been with their current home insurer for more than five years
This was not surprising to us but is not a well-known fact for those outside the home insurance space. Unlike auto insurance, where consumers tend to pay much more attention to price changes, home insurance has a great level of inertia keeping customers in place. This inertia comes from several items unique to home insurance. First, most home insurance policies are initiated at the time a home is sold and many are paid through a mortgage escrow. Because of this, many consumers ‘set it and forget it.’ Since they do not pay the home insurance bill directly, they typically stay with the same company unless they have a bad claims experience, or their company takes an extreme action like a non-renewal. Second, most home insurance is purchased through an agent and not directly from a carrier. Because of this, consumers are hesitant to shop on their own and when they do, they can face a rigorous process just to get a quote. Finally, cancelling a home policy is made extremely difficult by most companies. This often involves talking to an agent and physically signing a cancellation request. If a customer forgets to notify their mortgage company that they have switched insurers, it can lead to the bank purchasing a ‘force placed’ policy for them at exorbitant rates. Interestingly, the segment of the home insurance market that has been with their current insurer for more than five years is by far the most profitable segment of the market.
73% purchase home insurance primarily to protect against very large claims like fires and hurricanes
The ubiquitous 80/20 rule that applies to many areas of life also applies to home insurance. For home insurance, 80% of claims and expenses relate to 20% of the buying market. This 20% overlaps with what we call ‘Type 2’ insurance customers. These are customers that purchase insurance to protect against smaller, maintenance-type claims like leaky roofs. In our survey, 11% of respondents fell into this category. 73% of respondents fell into the ‘Type 1’ category that purchase primarily to protect against truly catastrophic loss events. Most of the remaining respondents answered that they buy home insurance ‘because my bank requires it with my mortgage.’ We would expect that at least some of that group falls into the ‘Type 2’ customer group as well.
77% have not filed a home insurance claim in more than 5 years
Homeowners claim frequency typically runs from 3-5% countrywide and varies based on exposure to catastrophic storm events, which result in a high frequency of relatively small claims. We typically use a rule of thumb that a person can expect to have on average one home claim over the life of a 30-year mortgage. So, this 77% claim-free response rate was a bit lower than we would expect. Not surprisingly, we did find that there was significant correlation between those responding that they had one or more claims in the last five years and those that said they purchase insurance to protect against smaller claims like a leaky roof.
Only 35% stated that they are ‘very satisfied’ with their current home insurer
This statistic highlights a difference between home insurance and other lines of business such as auto. Since claim frequency is low in the home insurance line, it is common for customers to not interact with their insurer on the claims side for a decade or longer. The claims experience is where service really counts for home insurers, and where they generate either stellar reviews or experiences so painful that the customer feels the need to move on. In the non-claims scenario where the insurance bill is paid through the mortgage, most customers have extraordinarily little interaction with their insurer, and we would expect their opinions to be ambivalent. We found that this was in fact the case, as 62% of respondents were either ‘somewhat satisfied’ or had ‘no opinion’. Ensuring a high percentage of ‘very satisfied’ customers will be a primary focus of Zinsurance. We plan to engage with our customers to help them prevent losses through use of IOT and SmartHome devices, providing customized home analytics, and providing an end-to-end mobile app that will assist with all interactions from quote to claim.
56% do not think that credit scoring should be used in pricing insurance.
A key differentiator for Zinsurance is a product that does not rely in any way on credit score. We feel that this metric should not be used to price insurance as it is correlated with attributes that lead to an unfairly discriminatory impact on many consumers. Please see article 1 in our series for our views on the use of insurance (credit) score in pricing. We are using numerous alternate data sources that do not rely in any way on credit score to build our product. We will incorporate telematics data from smart home devices and weigh actions that are in the control of the homeowner in setting our pricing tiers.
Zinsurance is a D2C digital agency formed by insurance experts with a mission to change insurance for the better. We are focused on saving homeowners time and money through the use of the latest data and technology driven by an end-to-end mobile app that handles everything from quote to claim. We are innovators in all areas including marketing, coverage, product, pricing, and process. Our number one goal is to ensure our customers are protected when they need it, and we are reconstructing home insurance from the ground up to make sure we do just that.
