Persistency In Auto Insurance: Loyalty Rewards Or Penalty?

Persistency in auto insurance refers to the loyalty of policyholders who consistently renew their policies with the same insurance company. Persistency is often measured through the 'persistency ratio', which indicates the proportion of policyholders who continue to pay their renewal premiums. This ratio helps determine the insurer's performance and the quality of the sale made by the insurer. Persistency discounts or loyalty discounts are offered by some insurance companies to reward loyal customers, encouraging them to stay with the company for a specific period, usually three to five years. These discounts can help customers save up to 20% on their car insurance rates. However, not all auto insurance companies provide persistency discounts, and the eligibility criteria and discount amounts may vary.

Persistency discounts

Persistency is a percentage that reflects the number of clients an insurance company retains for a particular insurance product. Persistency ratios indicate the proportion of policyholders who continue to pay their renewal premiums, fostering long-term relationships between insurers and policy buyers. Persistency auto insurance discounts, also known as loyalty discounts, reward customers who consistently renew their policies with the same company.

How Persistency Discounts Work

Eligibility for Persistency Discounts

To qualify for a persistency discount, individuals must remain with the same insurance company for a specified period, usually between three to five years. Some companies, like State Farm, offer discounts after just one year, while others, like Ameriprise, require several years of coverage before applying the discount. It's important to check with your insurance provider to understand their specific requirements and eligibility criteria.

Benefits of Persistency Discounts

Limitations of Persistency Discounts

Not all auto insurance companies offer persistency discounts, and transferring a persistency discount to a new insurance company is generally not allowed. However, it is worth comparing rates with other providers, as there may be other discounts available that could result in a better overall rate.

Loyalty discounts

The idea is that by providing a lower rate, the insurance company builds brand loyalty and repeat custom. The customer benefits from a discounted rate, and the insurance company gains a loyal customer. It's a synergistic relationship that can be beneficial for both parties.

However, it's important to note that not all loyalty discounts are created equal. Each auto insurance company has its own set of qualifications, discount amounts, and fine print. The discount can grow the longer you've been a customer, and some companies count the time you've been insured with a previous provider. The discount can also depend on state-specific and insurer-specific guidelines. For example, in California, insurance companies cannot offer loyalty discounts.

While loyalty discounts can provide significant savings, it's important to be aware of price optimization practices. In some cases, insurance companies may offer a loyalty discount while simultaneously raising rates, resulting in zero savings or even a net rate increase. Therefore, it's crucial to shop around and compare rates from multiple companies to ensure you're getting the best deal.

• Progressive: Average savings of 5% for bundling or 12% for multi-car policies. They also offer accident forgiveness coverage for customers who have been with the company for five years or more.
• State Farm: Average savings of 20% for multiple policies or 17% for multi-car policies. State Farm may also offer a renewal discount for accident-free records.
• Allstate: Offers an automatic 10% discount on car insurance for renewing at the end of the year and up to 25% savings for bundling multiple insurance products.

Building long-term relationships

Persistency in auto insurance is a metric that measures the percentage of clients that an insurance company has retained over a period. This is also known as the persistency ratio, which indicates the proportion of policyholders who continue to pay their renewal premiums. A high persistency ratio signifies customer satisfaction and loyalty towards the insurer.

To build long-term relationships in the context of persistency in auto insurance, insurance providers can focus on the following strategies:

• Value-based sales and service excellence: Providing value-based insurance sales backed by exceptional customer service is key to building long-term relationships. This means ensuring that the product features and benefits meet the needs of buyers. Promptly addressing all queries and concerns of policy buyers also fosters transparency and loyalty.
• Encouraging continuous coverage: Insurance companies can reward policyholders for maintaining continuous coverage with persistency or loyalty discounts. These discounts are typically offered to customers who consistently renew their policies with the same insurance company. By incentivising consecutive years of coverage, insurers can build long-term relationships with their clients.
• Enhancing customer satisfaction: The persistency ratio is a barometer of customer satisfaction with the insurer's products and services. By ensuring that policyholders are satisfied with their purchase, insurance providers can increase the likelihood of policy renewals and long-term retention. This can be achieved through competitive pricing, comprehensive coverage, and prompt claim settlements.
• Proactive communication: Insurance agents play a vital role in building long-term relationships. They should maintain open lines of communication with policyholders, providing clear information about renewal rates, eligibility for discounts, and the benefits of continuous coverage. Proactive communication ensures that customers are well-informed and can make informed decisions about their insurance needs.
• Personalised offerings: Understanding the unique needs of each policyholder and tailoring insurance solutions accordingly can foster long-term relationships. Insurance providers can utilise data analytics to personalise their offerings, ensuring that customers feel valued and appreciated. This may include providing additional coverage options or customising renewal terms to meet the evolving needs of their clients.
• Streamlining the renewal process: Making the policy renewal process seamless and efficient can contribute to long-term customer retention. This can be achieved by providing multiple channels for renewal, such as online portals, mobile applications, or in-person visits. Sending timely reminders and offering auto-renewal options with clear disclosure of terms and conditions can also streamline the process.

By implementing these strategies, insurance providers can build strong, long-lasting relationships with their customers, leading to increased persistency ratios and improved customer loyalty.

Continuous coverage

The benefits of persistency in auto insurance are twofold. Firstly, it rewards drivers who comply with the state's mandatory financial responsibility law, promoting road safety and reducing the number of uninsured motorists. Secondly, it benefits insurance companies by ensuring a consistent pool of customers, which helps to keep the company afloat and facilitates the underwriting activities and general upkeep of the business.

The specific requirements to qualify for a persistency discount vary across insurance companies. Some companies, like State Farm, offer a discount after just one year of continuous coverage, while others, like Ameriprise, require several years of consecutive coverage. The value of the discount also differs, with some companies offering up to a 20% reduction in rates, while others provide a 10% discount.

In the past, there have been efforts to introduce portable persistency discounts, which would allow consumers to take their persistency discount with them when switching to a new insurance company. However, these initiatives have faced legal challenges and have not been widely implemented.

Maintaining continuous coverage through persistency in auto insurance can help drivers save money and build a strong relationship with their insurer. By consistently paying premiums on time, drivers can access loyalty discounts and ensure they have the necessary protection while on the road.

How to get a persistency discount

Persistency in auto insurance refers to the percentage of clients that an insurance company retains over a certain period. A high persistency percentage indicates a successful product. Persistency discounts, also known as loyalty discounts, are reduced rates offered by insurance companies to incentivise customers to renew their policies consecutively.

• Speak to your insurance agent: They will be able to tell you whether you qualify for a persistency discount, how long you need to keep your policy in good standing for, and the value of the discount.
• Check your policy: Some insurance companies automatically include a persistency discount when sending out renewal rates. However, some companies require you to speak to an agent to learn more about their customer loyalty discount.
• Shop around: Not all insurance companies offer persistency discounts, so it is worth comparing rates with other companies.
• Be a loyal customer: Persistency discounts are offered to customers who renew their policies with the same insurance company year after year.
• Check the time requirements: The time required to be eligible for a persistency discount varies depending on the insurance company. Some companies, like State Farm, only require policies to be one year in length, while others, like Ameriprise, require several years.
• Understand the persistency ratio: This is the proportion of policyholders who continue to pay their renewal premiums. It is an indicator of the insurer's performance in the previous year and their long-term relationship with the policy buyer.

It is important to note that persistency discounts cannot be transferred to a new insurance company. However, other auto insurance discounts may be available to help reduce your rates with a new company.

Frequently asked questions