Central Bank publishes research on insurance engagement and switching

01 December 2022 Press Release

Central Bank of Ireland

  • Research finds 8 in 10 car and home insurance consumers engaging with their provider on renewal and 1 in 4 switching provider on renewal.
  • Consumers are more likely to engage with providers if the price increases on renewal. Behavioural characteristics play a role in engagement and switching.
  • Around 1 in 5 consumers are uncomfortable searching for and purchasing financial products online. These tend to be older, lower income, and less educated consumers.

The Central Bank of Ireland has today (1 December 2022) published an Economic Letter, “Engagement, switching, and digital usage in consumer and insurance markets: who does it and why it matters”. Authored by Shane Byrne, Jane Kelly, and Anuj Pratap Singh, the Letter examines engagement and switching patterns among car and home insurance consumers in Ireland. The Letter also looks at the characteristics associated with those consumers who feel uncomfortable searching for and purchasing financial products, including insurance, online.

The Letter 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. Among its key findings are:

  • 8 out of 10 car and home insurance consumers engage with their provider on renewal. Around 1 in 4 switch provider.
  • 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. Specifically, 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.
  • Perceptions also play a role in consumer behaviour. Around 1 in 4 believe that loyalty to an existing provider will be rewarded. 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.
  • Time-poor consumers are less likely to switch their policies.
  • 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.
  • Finally, and related to the above, 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. The Central Bank 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.


Notes to Editor

This Letter draws on a survey of 5,500 insurance policyholders (of which roughly 2,500 are home insurance policyholders and 3,000 private motor insurance policyholders), conducted in Q4 2020. This survey sought to gain insight into how consumers interacted with and understood insurance markets, as well as capturing key behavioural, demographic, and attitudinal information.

Around 72% of respondents were renewal consumers. 24% had switched from an alternative provider, and 4% were new consumers buying a policy for the first time.

For the purposes of the Letter, an “engaged” policyholder is defined as one that has actively searched for alternative options before purchasing or renewing a policy.

Monitoring of consumer behaviour and outcomes remains an important objective for the Central Bank. Active consumer engagement and readiness to switch is a core component of any healthy and well-functioning market. This analysis complements the work completed in the Central Bank’sReview of Differential Pricing.

The Consumer Protection Outlook Report details the key cross sectoral risks facing consumers of financial services in Ireland, and the Central Bank’s expectations of firms to avoid these risks materialising. We have also published a Dear CEO letter, issued to firms in November 2022, which details expectations in the context of a more challenging economic outlook characterised by energy-driven inflation and uncertainty.