What's the potential for behavioural economics?

Where we came from and where we are heading

After having brain surgery, I was intrigued by the human brain and how we act and make decisions. So when I saw "Psychology and Economics" listed as one of the class options at UC Berkeley for my economics degree, I jumped at the chance to see what it was all about.

After the first day, I was hooked. My professor had us answering live polls in class to show us exactly how we were irrational and biased – which forced us to all take a step back. The three years prior to this class, I had always taken and accepted the assumptions of economic theory, but it was all quickly being unraveled in one class.

Behavioural economics theory originated in a similar place. Academics (such as Amos Tversky, Daniel Kahneman, and Richard Thaler) started to find instances where they could prove that humans aren't always rational creatures – and they were able to find where we can actually be predictably irrational.

The field of behavioural economics stayed highly academic for a while and its initial foray into the real world was in public policy, where teams like the Behavioural Insights Team were embedded into the UK Parliament to bring about changes in human behaviors that affected the government. One of their famous studies was increasing payment of taxes by simply highlighting the number of on-time tax payers lived in their neighbourhood1.

In 2013, two of my team members at Swiss Re, Alison McLean and William Trump, identified the discrepancy between how we thought policyholders would behave and what they actually did, and so they started to explore the potential of behavioural economics in insurance.

The two of them built Swiss Re's Behavioural Research Unit, the first of its kind in reinsurance. Since then we have become industry leaders in understanding and nudging consumer behaviours, both globally and across the insurance value chain, as we have completed more than 150 research trials.

We have largely been able to do this with our first mover advantage. We were able to have positive trial results before what is now being called "the Golden Age of behavioural science2" with the number of behavioural insights units and initiatives growing exponentially as people are paying "appreciative attention to the thinking and research of behavioural scientists3."

Due to Swiss Re's early investment in behavioural science we have been able to have many trial successes. That includes the following, which have proved to have a significant financial impact for our clients in sales, underwriting, claims, and retention:

  • We increased sales by 180% in a recent direct mail campaign by focusing on the messenger and a clear call to action.
  • We increased completion of a claims form by 51% by anchoring the policyholder to tangible actions.
  • We increased open rates of an email by 145% by making the subject line personalised to the policyholder.

We have already seen and demonstrated how behavioural economics helps insurers understand their customers' behaviour and now we are looking at what might be next, as we continue to run more and more interesting, insightful, and successful trials.

By consolidating our results from the past five years, our team is now taking our behavioural research into its next generation. We are using our expertise in human behaviour to help answer some of the biggest questions our industry is facing, such as how to reduce bias in our decision making, improve the health of policyholders, bring innovative ideas to life, and operate in an increasingly digital age. There is immense potential in each of these fields to merge behavioural science and big data, and these are just a few of the many questions we are looking to answer.

It's a combination of this potential for the future of behavioural economics and the fact that we are constantly learning something new – that keeps me just as interested as my first day in my Psychology and Economics class. There is always a new idea to test, a new environment to test in, or more data that can help us provide better answers – and that's where I thrive, constantly testing and learning.

If you want to learn more about behavioral economics at Swiss Re or how we can work together to test and learn, please reach out to me, Alexa Wiese, or your Swiss Re representative.


[1] Cabinet Office Behavioural Insights Team (2011) Behavioral Insights Team Annual update 2010-2011.
[2] Cialdini, Robert B. (2018) Why the World Is Turning to Behavioral Science. Behavioral Economics Guide 2018, VII, VI-XIV.
[3] Sunstein, C.R., Reisch, L.A., & Rauber, J. (2018) A worldwide consensus on nudging? Not quite, but almost. Regulatino & Governance, 12, 3-22.

Any questions?