Eight out of 10 car and home insurance consumers engage with their provider on renewal and one in four switch, according to research conducted by the Central Bank of Ireland.
The findings are included in an Economic Letter entitled, “Engagement, switching, and digital usage in consumer and insurance markets: who does it and why it matters”.
It uses insights from a wide-ranging survey of policyholders in Ireland, together with behavioural economics, to highlight factors that can inhibit engagement and switching among policyholders
It found that policyholders are more likely to engage with and/or switch provider if, on renewing their policy, the price increases.
Behavioural characteristics play a role in engagement and switching, and certain consumers may be more likely to stick with the status quo, even when doing so may not be financially beneficial.
These consumers are less likely to engage or to switch provider.
The research also found perceptions play a role in consumer behaviour.
Around 1 in 4 believe that loyalty to an existing provider will be rewarded and these consumers are significantly less likely to switch.
Similarly, where consumers believe that they can make significant savings by switching, they will be more likely to do so.
It found that time-poor consumers are less likely to switch their policies.
Jonathan Hehir, MD of Insuremycars.ie, said the research shows that motorists should switch car insurer every two to three years.
“Just because your existing insurer is quoting you a better premium than last year’s, this does not mean it’s the best deal on the market,” he said.
“If one insurer is reducing their price, you can be sure that many others are also doing so, as it has become a very competitive market.”
“Shopping around is still as relevant as ever when it comes to getting the best deal on the market, particularly given so many of us are squeezed financially due to the cost-of-living crisis.”
Around 55% use digital information and channels as part of their engagement and switching.
However, 1 in 5 policyholders report difficulties in using the internet to search for and purchase financial purchases, including insurance.
These consumers tend to be older, lower income, and less educated.
It also found that policyholders that are less comfortable with digital channels are more likely to exhibit status quo bias.
The Letter highlights the role of consumer psychology in creating obstacles to engagement and switching.
In order to design effective disclosures and consumer protection policies, it is important to take consumer psychology and insights from behavioural economics into account, it found.
The Central Bank said it expects firms to take account of such factors as part of their efforts to support consumers in making fully informed decisions.
The Letter also highlights the importance of digital literacy in supporting consumers to engage and switch. Initiatives to support digital literacy can play an important role in mitigating the risk of exclusion in financial product markets.