Research by Decision Technology contradicts common assumptions
Behavioural science expert Decision Technology (Dectech) has found that, contrary to popular belief, customers are more likely to be put off buying a policy when offered more paid-for add-ons.
It’s new report Engine for Growth, explores how consumers respond to being offered add-ons with motor insurance deals.
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.
Dectech blamed these results on people’s cognitive bias towards simplicity. It believes are more likely to feel overwhelmed when given greater choice and will, therefore, feel more uncertain about the final deal they are offered.
Dectech director, Dr Henry Stott said: “These results provide food for thought for motor insurance providers. While traditional market research has suggested consumers want a big ecosystem of add-ons, our behavioural research methods show that they are actually less likely to buy when offered one.
“This presents a win-win opportunity. Regulators have shown a 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.”
The research 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.
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.
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 Stott continued: “Our extensive research into how consumers behave when offered add-ons with motor insurance shows that there is an appetite for extras, but providers need to be smart about how they sell them. Insurers should target a smaller, tailored range of add-ons to 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.”