Insurance agencies — embrace the 80:20 rule and dominate car loan payments

Ever since GEICO and Progressive went all in deploying huge marketing budgets and engaging in a price war, the car insurance industry became a highly price-sensitive commodity. To a great extent, it does not matter who is insuring you. Some have a better claim service than others but buyers rarely reflect on the potential claim. Their focus is on price and coverage; more so on price rather than coverage.

Independent insurance agencies today obsessively focus on getting the cheapest quote for the required coverage to lock-in prospects . And while the customer might be happy with the outcome, 6 months down the road, as rates increase, many start asking for their agents to shop for them again across carriers. So on and so forth.

It is understandable that drivers care about reducing their insurance payments, especially in inflationary times and with gas prices at an all time high. It is also surely recommended that insurance agents go the extra mile to find that cheaper quote and provide value to their clients.

But let’s take a step back and look at the bigger picture here.

The average US driver pays $790/ month on their car payments. $660 as a car loan to finance* the car and its back end products (GAP, VSC, etc.). And $130 for insurance**.

Insurance is less than 20% of their monthly car payments. So all the extra effort that an agent puts to reduce insurance payment, say by 10% if lucky, they are effectively reducing the $790/ month payment down to $777, a 1.6% decrease on the car payment made by that customer. That’s it, nothing more.

Wouldn’t it be greater, if insurance agents go the extra mile and look for savings that significantly matter in this equation? Instead of solely focusing on reducing 10% of 20% in the monthly car payments, why can’t they help the customer to find ways to reduce their car loan payments? The 80% that matters!

It is widely known today that more than half of car owners are overpaying on their car loan interest rates. Be it because of a dealership that overpriced the loan interest rate by 3-5% or because of a ding they had on their credit at the time of purchase that was later resolved.

The average customer that refinanced their car loans reduced their interest rate by 7% and their car payments by $100/ month (Source: Rategenius, Caribou). And while the process of refinancing a car is very easy (compared with mortgage), less than 5% of those who can benefit from it actually do it (compared to 50% for mortgage)

And it is understandable. They perceive it as a hassle and that it would require a lot of paperwork and commutes back and forth to their dealership, lender and the DMV. But it is actually way simpler. Many D2C refinancing players have invested major marketing dollars to highlight the ease of refi and spread awareness. Car owners are not budging. It seems to be a trust issue.

We strongly believe that insurance agents are the best suited to jump in and nail the opportunity. We believe it is their duty to comfort car owners, hold their hands and make sure they lower their car payments through a seamless refi. And that’s what we are building at Gaya!

Besides increasing customer satisfaction, and generating a significant lead-based revenue, increasing car owners purchasing power can help agencies reduce lapsing customers and increase retention. It can also help them increase coverage and upsell other insurance products that were not within that car owner’s budget.

Agents have always been creative and hard-workers. It is about time they follow the 80:20 rule and offer car loan refinancing.

Source:

*Experian, State of the Automotive Finance Market, Q2 2022 https://www.experian.com/content/dam/noindex/na/us/automotive/finance-trends/2022/q2-2022-state-auto-finance-market.pdf

**TheZebra, 2022 State of the Auto Insurance https://www.thezebra.com/state-of-insurance/auto/2022/reports/The-Zebra-State-of-Auto-Insurance-Report-2022.pdf