Do customers switch property and casualty insurers because of price? Although the cost of coverage does play an important role, our research and experience with European companies show that consumers might not be extremely price sensitive. A study of the top ten auto insurers in one European market showed that their policy rates for similar customers varied by nearly 40 percent but that these pricing differences had no real impact on market share. We analyzed the portfolios of three Southern European insurers and found that annual price increases of up to about 15 percent had little effect on customer churn. Indeed, one of the companies suffered a high departure rate for certain types of clients despite reducing prices (Exhibit 1).

Since customers of property and casualty insurers experience relatively few barriers to exit, these companies have higher rates of customer churn than do other financial-services businesses. In Europe retail banks have an average churn rate of 7 percent, for example, compared with 18 percent for automotive insurers. At the latter rate, a company that has 2,000,000 customers loses 1,500 of them each business day—which can have...