Online insurance: It's not just about price
Consider the following "fact". On average, about 25% of calls to motor insurance contact centres turn into sales, while the same statistic for online-generated quotes is closer to 5%.
So, runs the argument, people use the online channel to shop around far more than they use other channels. Therefore, online sales are far more price sensitive than offline, and as a result the only way to compete online is to have the lowest price. Right?
Well, no, actually. A recent survey by research group NOP highlighted the finding that most people who shop online value its convenience more highly than they value its ability to deliver the lowest price.
In point of fact, the most interesting feature of online sales of insurance is how many people never get as far as even seeing a quote, let alone comparing the quote with someone else's.
eBenchmarkers recent comparison of the performance of 15 major online insurers showed that on average nearly half of all people who began an online application, dropped out before they reached a purchasable quote. Furthermore, in some online application processes, 80% of people never got to the end, and so never saw a price.
What this means is that online applications can be so time-consuming and off-putting that people give up, get interrupted, or just lose their connection before they can even decide whether Insurer A or Insurer B is the best deal.
However, if Insurer A's process is so quick and convenient that it delivers a firm quote in record time, it is in fact quite likely to get bought. This is not to argue that online insurance is not price sensitive at all. But within certain limits, insurers with short, intuitive processes find themselves under less pressure to compete aggressively on price.
Customers who have experienced a fast, problem-free application process are often happy to go for simplicity and convenience rather than surfing frantically for a bargain.
Convenience also encourages customers to come back for more. The evidence suggests that cross selling is promoted by good user experience and our data indicates that consumers will often return to their initial online insurance provider for their other insurances if the company offers a good process.
When consumers encounter difficulties online, they often give up. Sometimes this may raise the cost of sale, as online customers switch to the call centre. In our surveys, insurers with the shortest motor insurance applications "lost" many fewer online applications to their call centres than the four insurers with the longest processes. But there is also a risk that customers will be lost altogether and go to a provider with a more convenient online shop.
Online insurance sales are "process sensitive" at least as much as "price sensitive". The winners in this business understand this crucial fact.
Stephen Adler and David Carpenter are directors of eBenchmarkers Ltd.
