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Richard Verdin: Stop reinforcing social norm to do nothing


Anyone who has taken an interest in behavioural economics will be familiar with the frailty of human judgement and decision-making. Particularly, the many predictable “effects” of the  systemic errors we are all prone to, known as biases.

When I stumbled across this now established area of science a few years ago I was surprised I had not heard of it before, especially given its focus on the subject of numbers, money and risk: ours is an industry supposedly obsessed with numbers, money and risk.

However, particularly in protection, we seem to have created our own systemic error, or bias. And that is to project our singular, rational theories onto our customers, ignoring the fact that most do not think in the straight lines we somehow expect. We ignore the fact that customers have two decision-making systems and we communicate with only one of them, which is why we are ignored by the other, to the detriment of our market opportunity and client needs.

Meanwhile, behavioural economics has been the subject of the FCA’s first occasional paper and various investigative/educational TV programmes and, of course, we now have auto-enrolment for pensions, a move informed by research in this area.

We are unlikely in the short term to have auto-enrolment for protection products but there are many things the industry could do  using behavioural economics insight. 

However, there is one thing the industry should do. That is to stop reinforcing a social norm among consumers which is to “do nothing” by continuously telling them the typical behaviour is to not arrange adequate cover.

Health services know to their chagrin that advertising statistics on no-shows for outpatient appointments encourage more people to not attend. HMRC knows that advertising the fact that a lot of people did not pay their tax in the right amount or on time has the same effect – more people pay less or later. Both now promote “good” big numbers not “bad” big numbers.

Promoting the protection gap by referencing the extrapolation that leads to a multi-trillion-pound figure is one way in which “expert” marketeers have effectively shot themselves (and the rest of us) in the foot; claiming that “two-thirds of women have never taken out life cover” and “64 per cent say they don’t buy cover because of cost” – just two examples from the past six months – is another.

What we see others do becomes our default behaviour. Indeed, our perceptions of what other people do often affect what we do, because we are supremely associative thinkers and doers.

The industry should be broadcasting the number of adults who do buy financial protection in the UK. Market data for the final quarter of 2013 points to 2.37 million adults a year buying life insurance, critical-illness cover or income protection. That’s 45,600 people a week, or 9,120 per working day. 

Then, if we were really smart, we could get all Amazonian and start publishing the financial protection that  “people like you” put in place.

There is now enough information and promotion around to suggest that continuing in ignorance of behavioural economics is most likely a deliberate act and that denying the evidence rather consigns one to the flat earth society. This issue is no longer one of not knowing; rather, it is one of knowing (or should know) and not doing.

It is my experience that history judges such people rather poorly.

Richard Verdin is chief marketing officer, UK & Ireland at RGA



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There are 2 comments at the moment, we would love to hear your opinion too.

  1. abacus test comment

  2. Totally agree. Behavioural science does indeed suggest that reinforcing the “negative” norm only discourages people from joining in (i.e. buying the Protection they need)

    Everyone has a story or two on “biases” and “nudges”, but what I’m struck by is the lack of evidence of the effect that these individual heuristics (and their interactions) have on behaviours in the insurance market – whereas there is much more coming from public policy, health and marketing

    The real winners, therefore, will be those insurers who not only talk about these insights (fun though they are) – but actually test these out in a live environment

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