One of the many things people study in business school is the so-called churn rate. For any business to succeed, there must be a minimum number of customers. This does not literally have to be exactly the same individuals all the time. Some people people may go, others may come. This is churn where there’s movement into and out of a group but you end up with roughly the same number of people, or the number of customers must grow at a rate the business can support. In the insurance industry, there’s a remarkable amount of stability in the customer bases for each of the leading insurers. Even though the insurers tend not to be very generous in their loyalty programs, customers are very reluctant to change from one insurer to another. Once the choice is made for the first policy, the majority of policyholders renew on auto pilot, never seriously considering a change. In today’s market, this is not very rational but that’s the way the market seems to work.

Indeed, in a recent survey carried out on Google, a modest sample of people with car insurance policies was asked whether they would be prepared to change insurers if the price was right. The majority claimed they would. When asked the natural follow-up question, the majority said they would need to make a saving of not less than $50 to seal the deal for change. Even in the cheapest states, the annual premium averages out about $1,000. If people really were prepared to change for a relatively modest saving of $50 we would be looking at high levels of churn. But all the statistics provided by the industry shows than less than 10% of all policyholders actually moves from one insurer to another. In other words, people are less than honest when they answer surveys on their insurance practices. If consumers really do compare multiple quotes from across the range of insurers, they are almost guaranteed to find savings of at least $50. So why are consumers so reluctant to change insurers?

The answer comes in a number of forms. Some people are comfortable with what they know and, unless something has gone seriously wrong, they prefer to stay where they are. In the insurance industry, there’s actually very little difference in service standards so there’s often little advantage in moving. This reflects the general prayer never to have to make a claim. No one wants to be involved in an accident so this encourages people to stay put. Why change if you hope never to have to use the service? So most people only get multiple car insurance quotes out of curiosity or when they have had a bad experience with the current company. If people continue in this conservative vein, insurers have no incentive to improve their policies or service standards. You will only get second best. So you should get car insurance quotes and act on them!