Before I analyze the results of the JD Power 2012 US Auto Insurance study for each of the seven regions rating auto insurance companies, I want to tell you about how the JD Power rating system works. Trusting the power circle ratings alone, without understanding how they are calculated, or the point score associated with them, can lead you to think an insurance company is better or worse than it actually is for customer satisfaction. Don’t worry about following the math in this post, but it’s important to read the conclusions I make about it.

JD Power rates companies using a 1,000 point scale.

5 power circles is the highest JD Power circle rating. This is for companies scoring within 10% of the range from the lowest rated company to the highest rated company in the study.

For example, say the highest rated company scored 900 out of !,000 points. The lowest scoring company received 700 out of 1,000 points. The range from highest to lowest is 200 points. 10% is 20 points. Any company within 20 points of the highest rated company’s score ( 900 – 20 = 880 points or more) would also be rated at 5 power circles. Only the highest rated company receives the JD Power & Associates Award.

Savvy insurance shoppers need to be aware of the actual point score for each company.

The company with the highest score, in this case 900 out of 1,000 points, gets the award, but if the next highest scoring company received 897 out of 1,000 points, isn’t it almost equally as good as the award winner?

The insurance industry is not loved by the public, or known for great customer service. What if the highest rated company is 800 out of 1,000 points? That would be a score of 80% (considering 1,000 out of 1,000 points would be 100%), equal to a “B Minus” when I was in school.

Do the top companies deserve 5 power circles on a sliding scale for an industry where none of the companies deserve an “A?”

4 power circles is the second highest JD Power circle rating. This rating is for companies scoring 10% or more of the range from the lowest rated company score to the highest rated company score, above the study average, but less than the score needed to qualify for 5 power circles.

Using the example from above, the top company scored 900 out of 1,000 points. Companies scoring 880 or more out of 1,000 points get 5 power circles. The industry average score for the region studied is 800. The range from the lowest rated company to the highest rated company is still 900 – 700 = 200 points. 10% of 200 points is 20 points. Companies scoring 820 (800 study average score + 20 points) to 879 would receive 4 power circles.

A 4 power circle rating can be misleading when there is a small difference in the number of points from the lowest rated company to the highest rated company.

For example, in the JD Power 2012 Central region auto insurance study, the highest rated company scored 857 points and the lowest scoring company had 772 points. This is an 85 point difference. Any company scoring more than 8.5 points above the study average gets a 4 power circle rating. Does 8.5 points more on 1,000 point scale really indicate an above average company?

When I review the region studies, I will let you know the actual point score, and if I think it makes a difference in the quality of customer satisfaction.

3 power circles is the JD Power circle rating for the average-performing company. This rating is for companies scoring between 10% of the range from the lowest rated company score to the highest rated company score, above the study average, to 20% of the range from the lowest rated company to the highest rated company, below the study average.

Continuing with my original fictional example, the study average is 800 points. 10% of the range is 20 points (900 -700 = 200. 200 x .10 = 20 points). 20% of the range is 40 points (200 x .20 = 40 points). So, companies scoring between 820 and 760 receive 3 power circles.

In this example, there can be as much as a 60 point difference among companies rated as average, with a greater allowance for companies scoring below the study average to be rated as average.

Can there be a big difference in the quality of service from a company scoring 819 points out of 1,000, and a company scoring 761 points out of 1,000? I think so.

In my review of the regional scores, I will explain how each company’s point score relates to the study’s average score, no matter what the circle rating.

2 power circles is the lowest JD Power circle rating. This rating is for companies scoring more than 20% of the range from the lowest rated company score to the highest rated company score, below the study average.

Sticking with the same example, a score of 759 points or less out of 1,000 earns any company a 2 power circles rating. 20% of the 200 point range is 40 points. 800 points (the study average) minus 40 point is 760 points. Companies scoring less than 760 points get a JD Power rating of 2 power circles.

So, one company scoring 760 points out of 1,000 receives 3 power circles, but another company, with one less point on a 1,000 point scale, receives 2 power circles.

With the power circle rating system, companies rated above average may not really be much above average, companies rated average may be below average, and companies rated below average may not be much different than companies rated as average. I will help you make real sense of the numbers behind the power circle ratings as I continue this blog series.

Here is the source the of the information I used for my analysis of the JD Power power circle ratings.

Tomorrow, I will discuss the factors used to determine a company’s overall satisfaction rating, such as Pricing & Contacting the insurance company, and what they should mean to you.

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