Understanding consumer price sensitivity in the UK General Insurance market

As the UK’s economic environment continues to shift, grasping how price sensitivity influences consumer decisions is essential.

This month, a panel of Consumer Intelligence’s insurance experts came together to discuss the evolving dynamics of consumer behaviour in light of economic pressures, in a webinar titled "Understanding Consumer Price Sensitivity in the UK General Insurance Market". 

Introducing consumer price sensitivity

It’s no secret that the cost-of-living crisis is leaving consumers financially stretched. Ian Hughes, CEO of Consumer Intelligence, noted how this fact alone has intensified consumers’ price sensitivity in recent years. The conversation underscored the broader economic strain influencing consumer decisions, painting a picture of the urgent need for financial relief among policyholders.  

Ian said, “Consumers are even more sensitive to price today than they have been for an extended period of time. They’ve been experiencing inflation across their mortgages, their food bills, electricity, gas – people are feeling the pinch, and some if that is because the cost of insurance has been going up too.”  

The impact of inflation on insurance 

Quite significant premium inflation has been seen across both motor and home insurance over the last 18 months, post-introduction of the general insurance pricing practices (GIPP), in which the FCA motioned to put an end to price walking.   

Consumer Intelligence Client Partner, Diccon Jefferies, referenced the cost of claims and the primary driving factor behind the inflationary uptick. “For motor, if you can remember back in 2022 there was a lot of talk around chip shortages, for example silicon chips, being a big part in in the construction of new vehicles, which had a knock-on effect in the second-hand car market.

"Consider parts availability issues there as well. More EVs, and more hybrid coming into the market. These are more expensive and trickier to repair, or indeed there are fewer places drivers are able to take them for those repairs."  

Thefts of newer vehicles have also played a role, especially some of the pricier brands, like Range and Land Rovers. “All of this has driven up the cost of claims”, says Jefferies.  

However, motor inflation shows signs of plateauing, yet we’ve seen a delayed reaction in home insurance inflation, which continues to rise – mostly due to weather, particularly recent storm losses. 

Somewhat predictably, consumers aren’t too happy about the seemingly relentless increases in costs. The results of a study into consumer reactions to premium increases revealed evident consumer frustration. "People are shocked and annoyed," said Catherine Carey, Head of Marketing at Consumer Intelligence. She citied some verbatim comments from surveyed individuals facing higher premiums, one of which read, ‘Renewal 6 times the previous year, I would not have any insurance at that price’. Another simply stated, ‘I refuse to support and finance profit greed’. 

Triggers for shopping and switching 

The panel went on to discuss the significant uptick in shopping and switching behaviour among consumers, with the market average shopping rate climbing from 78% to 86%. "This is almost like the entire population of Greater Manchester deciding to shop around for car insurance," Ian remarked, highlighting the magnitude of the shift. However, Diccon noted, "High shopping rates don't necessarily translate to higher switching rates," pointing out the complexities of consumer loyalty and the challenge of beating renewal quotes. 

Leveraging and mitigating  

The conversation then pivoted to strategies for leveraging and mitigating price sensitivity. Ian considered the current environment as a fleeting opportunity for insurers to capitalise on consumer behaviour. He warned of the long-term implications of not addressing the root causes of price sensitivity, suggesting that a failure to adapt could lead to increased consumer dissatisfaction and regulatory scrutiny. 

Catherine underscored the role of transparent marketing and customer education in retention strategies. She highlighted the effectiveness of price substantiations in marketing, which, according to recent survey data, significantly influences consumer decisions to shop and switch. 

The future of insurance and price sensitivity 

Looking ahead, Ian predicted that while consumer price sensitivity may not diminish, the insurance industry's approach must evolve to address fewer fluctuating premiums and heightened expectations for value. Diccon called for more innovation in product offerings and customer engagement, suggesting that insurers must look beyond traditional platforms to connect with a price-sensitive audience. 

In concluding the webinar, the panellists shared their final thoughts: 

• Ian emphasised the window of opportunity for insurers to address consumer price sensitivity proactively. 
• Diccon advised on the importance of direct consumer engagement and innovation in product offerings to differentiate in a competitive market. 
• Catherine highlighted the critical role of messaging and the need for a solid value proposition to maintain consumer trust and loyalty. 

Want more insights? Get the full scoop... 

By addressing price sensitivity with informed strategies and innovative solutions, insurers can navigate the challenges of the current economic climate, ensuring resilience and relevance in a rapidly evolving market.

The "Understanding Consumer Price Sensitivity in the UK General Insurance Market" webinar provided valuable insights into the current state and future of consumer behaviour in the insurance sector. To watch those insights being presented in full, catch up on the webinar recording below.