Future Ready: An insightful exploration of behavioural economics and its impact on insurance

Swiss Re recently hosted its 8th annual Future Ready event at its Toronto offices, welcoming invited clients from the property and casualty (P&C) and life & health (L&H) insurance sectors. The event was moderated by Tina Luciani, head of P&C reinsurance claims for Swiss Re Canada, and featured a distinguished panel of experts who explored the transformative influence of behavioural economics on the insurance industry.

Swiss Re Canada's CEO, Jolee Crosby, welcomed guests and emphasized the relevance of behavioural economics to insurance, reflecting on the need for creative approaches to reach more consumers and enhance societal resilience.

The discussion began with Alex Kaju, head of life and health customer experience at Swiss Re Americas, who provided an overview of behavioural economics, contrasting it with traditional economics.

"Behavioural economics is the study of why we think what we think and do what we do," he said.

He explained that while traditional economics assumes rational decision-making based on gathered intelligence, behavioural economics considers the quick decisions influenced by socio-economic, psychological, and environmental factors. Kaju highlighted the importance of understanding these decision-making shortcuts to improve consumer interactions across the insurance lifecycle.

"The people who are studying behavioural economics in insurance or in kind of any consumer facing industry are psychologists of judgment, decision making and behaviour."

Francesca Tamma, head of behavioural research at Swiss Re, elaborated on how behavioural economics helps us understand decision-making in uncertain environments. She discussed concepts like ambiguity aversion and the psychology of scarcity, which lead consumers to stick to the status quo and focus on immediate needs rather than long-term rational decisions. Tamma emphasized the need for insurance companies to simplify options and support policyholders in making informed choices.

"By simplifying the choices and providing clear information, we can help consumers make decisions that are beneficial in the long run," she stated.

Davina Boulineau from TD Insurance and Penny Wilson from Manulife shared their experiences with high-net-worth clients and the general public, respectively. Boulineau noted a shift from asset growth to asset preservation among high-net-worth clients, driven by fear and the need for confidence and trust in their insurance advisors. She emphasized the importance of personalized service and clear communication in helping clients understand their options.

"Personalized service is key. Clients need to feel confident and trust that their advisors have their best interests at heart," Boulineau explained.

Wilson added that customers often struggle to right-size risk during times of uncertainty, making it essential for insurance companies to provide psychological safety and guarantees. She highlighted Manulife's Vitality program, a behavioural insurance model built into its core product suite which creates interaction with customers on a regular basis.

"We think about the customer journey from the standpoint of what the buyer really does rather than what we want them to do," she said. "You will have multiple touch points before you get them to trust you."

Wilson noted that it's not one-size-fits-all anymore and you have to also recognize people have different personality traits.

The panel also explored the interplay between behavioural economics and emerging technologies like artificial intelligence (AI). Tina Luciani raised questions about how AI can enhance but not replace personal touch in insurance. The panelists agreed that AI can streamline processes, simplify decision-making, and provide valuable insights, but it must be used transparently and ethically to avoid biases.

"AI is a powerful tool, but it should complement, not replace, the personal touch that is so crucial in our industry," emphasized one panelist.

In closing, the panelists shared their key takeaways:

• Francesca Tamma: Simplification and clear communication are crucial in times of uncertainty.
• Penny Wilson: Design experiences from the consumer's perspective.
• Davina Boulineau: Understanding customer behaviour is key to success.
• Alex Kaju: Use the EAST model (Easy, Attractive, Social, Timely) to facilitate decision-making.

The event concluded with a lively Q&A session, followed by an apero and networking, where attendees continued their discussions and networking.

Swiss Re's Future Ready event provided valuable insights into the application of behavioural economics in the insurance industry, highlighting the importance of understanding consumer behaviour and leveraging technology to enhance customer experience. The discussions underscored the need for clear communication, personalized service, and ethical use of AI to navigate the complex landscape of modern insurance.