Behavioral Economics

Transcription

1 Behavioral Research Unit Behavioral Economics CCEA 2018 Dr. Allison Varley Lee Behavioral Research Consultant Swiss Re

2 Swiss Re s Behavioural Research Unit (BRU) a 2

3 What is behavioral economics? Traditional Approach Assumes that people: Are rational & have set preferences To change behavior Provide information and financial incentives Behavioural Science Approach Understands that people: Are not solely driven by facts To change behavior Change the context in which people make decisions ( nudge ) Test everything in the real world and measure if it has an impact 3

4 Applying BE to Insurance SALES UNDERWRITING CLAIMS/FRAUD RETENTION Test changes to direct customer touch points, such as: letters, s, forms, websites, text messages, and agent trainings/call scripts. a Behavioral Research Unit 4

5 Randomized Controlled Trials An effective method to evaluate the behavioral intervention Representative sample is randomly assigned into 3 groups. Behavior measured in all 3 groups to make comparison across groups. Adapted from: Cabinet Office Behavioural Insights Team, Test, Learn, Adapt: Developing Public Policy with Randomised Controlled Trials,

6 How to think about a problem like a behavioral economist M Messenger We are influenced by who relays information. S Salience We respond to things that are new and relatable. I Incentive We respond to incentive using mental shortcuts. P Priming Behaviour can be influenced by unconscious cues. N Norms We tend to do what those around us do. A Affect Emotional associations can shape the way we behave. D Defaults We like to "go with the flow. C Commitment We look to be consistent with ourselves and our public promises. E Ego We act in ways to make us feel better about ourselves. Behavioural Insights Team,

7 Case Studies a 7

8 Improve response time for medical evidence UK Life Insurer Problem Statement Business Challenge The average response time taken to receive medical information from doctors is 33 days for Critical Illness (CI) and 24 days for Terminal Illness (TI). How to shorten response time with an additional message? 1. Control 2. Added Messages BE intervention Critical Illness 63% <30d Message at the top of the form: Did you know our fastest GPs return these forms in as few as 3 days? Could you do the same? 73% <30d Anchoring message to fast response time. Hand written post-it note to enhance salience and affect of the message. Terminal Illness 24% <10d Handwritten post-it note: Your patient may have as little as 12 months left to live. Please don t delay sending this form back. Thanks. 32% <10d Results Statistically significant increase in proportion returned within 10 days (TI) and 30 days (CI) 8

9 Increase health information disclosure Australian insurer (1/2) Problem Statement Business Challenge The client identified several areas of under-disclosure. How to improve disclosure in smoking, alcohol consumption, and drug use on a standard underwriting form? 1. Control Honesty Declaration at the end of the form 2. New Honesty Declaration at the beginning of the form BE intervention Salience: changed placement of the honesty declaration Drug use Alcohol Smoker 8.6% 11.3% 85.3% 88.2% 15.0% 16.0% 2.3% 5.9% Results 31% relative improvement in drug use disclosure 3% relative improvement in alcohol consumption reporting 7% relative improvement in smoker disclosure 9

10 Increase health information disclosure Australian insurer (2/2) Problem Statement Business Challenge The client identified several areas of under-disclosure. How to improve disclosure in smoking on an underwriting form? 1. Control 2. Ego BE intervention Have you smoked tobacco, e-cigarettes, or any other substance or used nicotine replacement products (including nicotine patches) within the last 12 months? Yes No 16% Please select your smoking status. By smoking status, we mean the use of tobacco or e-cigarettes or nicotine replacement products (including nicotine patches) Daily Weekly Monthly Yearly I quit less than a year ago I quit over a year ago I have never smoked 19% Ego: expand binary options of smoker vs. nonsmoker into more options Results 19% relative improvement in smoker disclosure 10

11 Encouraging use of preferred repair shops Global insurer wanted to increase customer satisfaction by encouraging customers to take damaged cars to an in-network repair (provided better quality service and discounts vs. out-of-network) Tested 20 nudges on 7,500 cases of breakdown assistance In this case Defaults: framing the in-network benefits as something that would be lost if customer went out-of-network Salience: Given greater quality of in-network shops, made quality the salient feature Empathy/personalization: Assistance specialist started conversation by expressing empathy ( I m sorry your car broke down that must be quite inconvenient ) Volume of cars received by in-network repair shops increased by up to 9% Customers involved expressed 13% higher satisfaction McKinsey,

12 Claims & Fraud timeline Claimcausing incident Encouraging safe/healthy behaviors Clearly communicating about coverage Filing claim Honest & accurate disclosure Fraud prevention Form completeness Claim evaluation Speed & completeness of 3 rd party requests Speed & efficiency of evaluation Communicate decision/offer Offer acceptance? Legal involvement Post-claim decisions Reduce complaint call rates following rejected claim Increase offer acceptance Reducing length of claims Increasing settlement acceptance Encourage rehabilitation Encourage using providers of choice 12

13 Fraud Prevention: a Behavioural Economics perspective Up to 30% of claim revenue is lost to soft fraud (i.e., smalltime cheating by normally honest people ). The most common type of insurance fraud (39%) is claim padding Solution: Detection, or Prevention? Evidence from academic research. Claim padding reduced when consumers agree with an honesty statement at the beginning of a claims process. framed as non-normative (e.g., A small minority of consumers pad their claims ) framed as having victims (e.g., When policyholders pad insurance claims, this results in higher costs to all their fellow policyholders. ) deductibles are lower consumers view deductibles as unfair and, therefore, see claim padding as more ethically permissible when deductibles are high. Coalition Against Insurance Fraud (CAIF), 2017; Association of British Insurers, 2011; CAIF, 2007; Miyazaki, 2009; Crime and Fraud Prevention Bureau, 2000; Leal, Vrij, Mahari, & Mann,

14 Key takeaways Behavioural Economics can help to improve interactions with customers in sales, retention, underwriting and claims environments. Small, inexpensive contextual changes ( nudges ) can make disproportionate differences to customer behaviour. Only by running rigorous tests can we truly establish what works (and it s not always what we think). a 14

15 Q & A 15

16 Behavioral Research Unit 16

17 Client Collaboration Timeline Intro to BE Identify measurable pain points Analyze historical data about customer behavior Mock up communications Incorporate behavioral economics concepts Develop a testing plan -Randomized A/B testing -Before/After Launch trial & collect data 3-6+ months Analyze results and provide insights 17

18 Increase retention through s Malaysian Motor Insurer Problem Statement Business Challenge Motor insurer wants to encourage renewals How to improve open rate by changing the subject line? 1. Control 2. Ego 3. Personalised Subject: Motor Policy Renewal Reminder Save 10% on your Motor Policy! Subject: Renew your Motor Policy today at a privileged rate Subject: Your Motor Policy for <vehicle number> is due on <expiration date> 33% 42% 81% BE intervention Ego messaging: privileged rate today. Salient message using smart personalisation. Results Statistically significant improvement in open rate, with no adverse impact on the subsequent click rates Behavioral Research Unit 18

19 Renewal reminders via text message Health Insurer Problem Statement Business Challenge Health insurer is aiming to increase renewal rates for annual health insurance. How to improve renewal rates with a text message? 1. Control 2. Social Norms 3. Ease of Process No SMS sent Renewal Letter was sent as usual SMS: Did you know that so far this year, 9 out of 10 customers have chosen to renew with us? SMS highlighted the ease of process by giving a link to renew policy online 90.9% 92.2% 93.2% BE intervention Social norms Ease message Results The social norms SMS outperformed the control message (85% confidence) by 1.5% The online payment SMS outperformed the control message (90% confidence) by 2.5% Behavioral Research Unit 19

20 Increase responses from customers who have moved UK Life and Pension Insurer Problem Statement Business Challenge The insurer has lost contact with a segment of customers as they have moved house. They are able to find their new address, but must write to them and receive confirmation from the insured. How to increase rates of new address confirmation? 1. Control 2. Salient Letter BE intervention % 36.2% Week 2 Week 3 Week 6 Week 10 Control Salient Letter Behavioral Research Unit Increased salience of the letter by asking a question in relatable language Results Relative uplift: 15% (sig at 90%) Roll-out: 2,700 letters achieved 37.1% (making results sig. at 95%) Surprising finding: significant decrease in proportion responding by phone (from 71% to 61%) 20

21 Legal notice 2017 Swiss Re. All rights reserved. You are not permitted to create any modifications or derivative works of this presentation or to use it for commercial or other public purposes without the prior written permission of Swiss Re. The information and opinions contained in the presentation are provided as at the date of the presentation and are subject to change without notice. Although the information used was taken from reliable sources, Swiss Re does not accept any responsibility for the accuracy or comprehensiveness of the details given. All liability for the accuracy and completeness thereof or for any damage or loss resulting from the use of the information contained in this presentation is expressly excluded. Under no circumstances shall Swiss Re or its Group companies be liable for any financial or consequential loss relating to this presentation. Behavioral Research Unit 21