Accelerating insurance transformation through behavioural economics
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There are things that are good for you. But its common that you'll choose to end up doing nothing. This was me and my first life insurance purchase. I still remember buying the first term life policy for my wife and me - online - not long after our eldest daughter was born. When you have children, it's important to take a step back and plan. As much as we want to be able to dictate and predict the future, we never know how long we're around for.
For us, major life events like purchasing a house, having a child or getting married are very strong triggers. Illness obviously, is another.
When I put on my professional hat, I know that intent doesn't always translate into a purchase, even if the right product at the right price is out there. This is where Swiss Re applies behavioural economics to the customer journey. From awareness, engagement, application to payment, behavioural economics blends aspects of psychology, neuroscience, economics and decision science to understand the emotional and associative factors that we use to make sense of complex tasks (like buying insurance!). These factors are often inconsistent with traditional economic theories. By anticipating the various systemic biases and mental shortcuts that customers are likely to rely on, we can design our products, messages and processes to align with how our customers actually process information and make decisions.
For example, when we were working with a client's online sales landing page, Swiss Re recognised that different potential customers may be at different stages of readiness, and their understanding of insurance terminology may differ from one person to another.
By simply changing the single option of "Get a quote" to two options: "Check your price" and "Ask us to call you", we were able to increase the click rate by 22%. More customers felt comfortable enough to take one step further rather than abandoning in uncertainty.
Our latest Asia Mortality Protection Gap research shows that 75% of households in the 10 surveyed Asia-Pacific markets are unlikely to cope financially if their main breadwinner passes away. Can we apply behavioural economics to increase the life insurance uptake? Absolutely! I see two different types of customers from our research and behavioural economics helps. Some customers need help to cross the last mile from knowing they ought to secure insurance protection to actually getting it done. Insurers applying behavioural insights can help reduce the friction in the process, such as confusing application questions, or an unclear path to completion. The research sheds light on another group of customers who don't even know they ought to secure insurance. They assume they already have enough. By using an understanding of behavioural economics to optimise how information and options are presented to different audiences,
In our study, the customers articulated their reasons for not purchasing insurance, such as perceived cost, poor perception of insurance, or choosing to earn more instead of buying life insurance. We can't overcome all of these hurdles using behavioural economics, but it is important to remember that behavioural economics is not about changing people's minds on these topics, but rather changing the context in which they make the decisions. For example, appreciating that the method and frequency that the customer pays the premium can have a larger effect on their perception of cost than the actual price.
If you want to apply behavioural economics to influence customer decisions involving life insurance products, here are some practical suggestions:
- Offer bundles of different risks: While too much choice is usually overwhelming, customers also fear making a bad decision. They may avoid making a decision at all, particularly when faced with unfamiliar situations, like buying life insurance. Our study revealed a clear preference for bundled products. Offering a flexible bundle reduces the reliance on a customer deciding on one 'optimum' type of cover and allows the policy to cover several needs at once - like a half and half pizza topping or a bento box.
- Be a responsible choice architect: Each design decision your team makes has the power to influence how the customer makes their choices and understands information. There is no neutral option, so you have an ethical obligation to ensure your design maintains the customer's best interests and avoids unintended consequences. Especially for digital journeys, building the science of A/B testing into your development process allows you to learn and quantify what truly influences customers. It also helps to challenge conventional wisdoms such as 'customers prefer to have no medical underwriting questions', that we assume to be true.
- Overcome present day bias: Asking a customer to pay premiums today for a potential benefit in the future that they will never see themselves, or hope not to, is an unavoidable feature of life insurance, and involves powerful elements of human behaviour. To recognise this pull towards instant gratification, insurers can consider offering short-term rewards such as discounts linked to lifestyle behaviours, non-monetary gifts from partners or even bundling insurance products with more regular returns along with long term life covers. This may reduce hesitance to consider life insurance products. Alternatively, relevant, tangible value-added services can be offered with insurance policies that address consumer concerns beyond financial needs. Examples might include providing estate management or medical concierge services to help when the customer needs it most.
- Address areas of customer uncertainty; COVID-19 conditions mean that increasingly, a customer's first exposure to life insurance is through digital channels. It might introduce areas of uncertainty for the customers that can’t be resolved by asking an insurance agent and are potential reasons for them to abandon their consideration and purchase journey. Research has shown that confidence and understanding of what the insurance product 'does' for them is more relevant to their purchase decision than the number of underwriting questions, or even the price. Therefore, insurers should ensure the products and the purchase process are easy to understand on website landing pages and email marketing, such as what they need to complete a quote, reveal the premium, or what insurers will do with their information. Insurers shouldn’t assume that customers understand the insurance concepts that we are familiar with. Explaining 'what is life insurance' could be more effective than a rational table of product features. We find that for channels that don’t involve insurance agents, customers, even Millennials and digital natives, still prefer to have the option to talk to a real person during the purchase process.
Insurers that don’t incorporate behavioural insights when designing the next generation of insurance solutions will find themselves continually surprised when their customers don't behave as they expect. Behavioural economics offers a shortcut to that learning curve of reliable customer insights. Not only will it help close the mortality protection gap and strengthen resilience in the region, it also enhances the customer experience, increase conversion rates, and maximises the chance of successful engagement with customers through new distribution channels.