How Insurers Can Use Behavioral Economics Approaches to Make Improvements – Bringing BE to the Forefront
At Gen Re, we often talk about ways to actively utilize Behavioral Economics (BE) approaches – in fact, one of our favorite catchphrases is “putting BE into action.” Implementing these important tools can help insurers in many ways, from developing effective question designs for insurance applications, to improving website design and marketing.
Heidi Alpren talks with Keith Brown, a self-described “BE enthusiast,” to hear more about how he has taken this “putting BE into action” message to heart – and how insurers can do the same.
Q. Keith, you’ve worked directly with a long list of our Gen Re client companies over the past several years. You've helped them to improve not only disclosure on their applications and Personal History Interview (PHI) scripts, but also overall application and PHI design. What is one key suggestion that you would share with insurers as they work to improve their applications?
Keith: It’s hard to believe that we’ve already completed over 50 initiatives to help the insurers we work with. It’s very challenging to pick one key suggestion. Prior to joining Gen Re, I worked for direct companies and led many initiatives to redesign and improve applications. Companies tend to avoid that and go as long as they can without making application changes. There are many reasons for this – salesforce pressure, cost, resource constraints, IT challenges, and filing challenges. All of these are certainly understandable. But this doesn’t help the situation, so my key suggestion is to do an annual review of your applications, and ask the simple question: How can they be improved?
Q. Certainly sounds like this would be considered a best practice! So, how can applications be improved?
Keith: Well, to answer that question, companies will need data to identify where to look. Some of that data may include which questions are amended most frequently, and why? Which questions take the most time to complete and why? And then they should also ask themselves, is that okay? Or, do we need to take another look at this?
Another suggestion is that insurers should also review which questions have the lowest “yes” answer rates. Again, it’s important to find out why this is happening and determine if the response rates are acceptable or if changes are needed.
Q. Keeping with that same theme, are there other areas where some additional review would be helpful from a BE perspective?
Keith: Insurers should look at whether claims are overly concentrated in certain medical or nonmedical areas. They need to determine whether that is related to question design, or perhaps due to questions that are missing from an application.
Also, work in conjunction with the Claims Department to find out whether the company has lost any litigation on contestable claims due to the way a question – or questions – are designed. If the answer is yes, the next step is to figure out what changes are needed.
Q. You mentioned earlier that you’ve worked on many projects that utilized BE approaches. Have you heard any concerns from insurers when sharing BE‑related suggestions for their applications?
Keith: Yes, implementing a BE‑based design to improve disclosure can result in evidence of insurability questions taking more time to complete. That leads companies to decide if increased disclosure and better mortality or morbidity experience are worth some extra time on application or PHI completion. When companies go the re‑design route, we have usually been able to offset much, if not all, of the extra completion time through re‑design or elimination of other application sections.
Q. I recently read an article about the State of Colorado coming out with legislation that prohibits the use of some information in Life and Health underwriting, whether full or accelerated. In your opinion, does this development bring BE approaches even more to the forefront?
Keith: Yes! SB 169 is a bill that prohibits insurers from using algorithms, external data sources, and predictive modeling systems in ways that appear, from the perspective of the lawmakers, to discriminate against people based on “race, color, national or ethnic origin, religion, sex, sexual orientation, disability, gender identity, or gender expression.” When algorithms or predictive models are involved, this legislation may prove to be a challenge to traditional underwriting that considers factors such as family history, medical tests, and occupational information – behavioral information that is predicated on actuarially sound research. Similar legislation may arise in other states, and for this reason, maximizing applicant disclosure during the application and Personal History Interview processes becomes even more important.
Q. What have you learned from all the work you’ve done with BE that might help companies in areas other than application design?
Keith: Those familiar with Gen Re’s BE work will most likely think about application and Personal History Interview script design work that we have done so much of, but that’s just a sliver of the full scope. My favorite work involved helping a large company’s highly successful advisors improve their media presentations to sell to their clients. We really challenged their historical practices and deeply ingrained biases about the content of such presentations, and we were able to offer dramatic improvement.
The other area where BE approaches can help is with website design for client service functionality. This is fertile ground for improvement. One opportunity for client retention and engagement that many companies overlook is offering sites in a larger variety of languages. We see English and sometimes Spanish, but rarely more languages than that. We have a diverse country with many clients whose primary language is not English. Insurers with websites that offer a broader array of languages may find it easier to attract and retain clients.
Q. Someone recently asked me what my favorite BE concept is – for me, it’s choice overload! What’s your favorite?
Keith: Simplification related to nudging. Nudging is one of the most well-known BE concepts, and a simple definition is using positive reinforcement and indirect suggestions as ways to influence behavior and decision-making of individuals or groups. Simplification recognizes that complexity can be costly and potentially harmful. Often our products and riders, forms, online instructions, application questions, and policy language are very complicated.
Combining simplification with nudging can significantly improve outcomes for insurers across operational areas.
Interested in hearing more about BE to improve your business? Reach out to one of us, and we’d be happy to talk with you!