Push or Pull? …Or Nudge?
As, the COVID-19 pandemic continues wreak havoc around the world, it is also driving the acceleration of significant societal change, the impacts of which will no doubt persist beyond the end of the pandemic – if we ever get there! Nudge theory is something that governments have been exploring as a means to encourage behaviours that mitigate the spread of the virus and to encourage vaccine uptake. Are there any applications that the insurance industry might adopt?
What is nudge theory?
Nudge Theory is based upon the idea that by shaping the environment (also known as the choice architecture) one can influence the likelihood that one option is chosen over another by individuals. A key factor of Nudge Theory is the ability for an individual to maintain freedom of choice and to feel in control of the decisions they make.
The idea is simply to make it easier for individuals to make decisions that are in their broad self-interest, by subtly “nudging” them to favour a certain course of action or behaviour. Subtlety is the key – individuals must feel like they have made the decision themselves.
"Individuals must feel like they have made the decision themselves"
These nudges span an exceedingly wide range of subtle interventions. The most effective nudges are “default rules”. Automatic enrolment into pensions schemes with effort required to opt out, have dramatically impacted retirement savings rates.
An experiment conducted by the Behavioural Insights Team, one of the world’s leading behavioural science organisations, found that changes in labelling, framing and prompting, resulted in significantly higher contribution rates to retirement savings.
Other successful techniques include use of social norms, simplification, increased convenience, better disclosures, warnings and reminders.
As with all behavioural science, iterative test and learn exercises uncover the most impactful insights. Identified target behaviours are encouraged by creating a choice architecture that makes it easier for individuals to choose a better solution. The choice architecture is varied until the optimal outcome is achieved. Think about how we, in the insurance industry, approach product ideation and creation, for example. Sometimes we’re nudging without even realising it
Where to for insurers?
Intuitively, the successful implementation of nudge theory has the potential to drive significant value in the insurance industry. The industry depends on consumers making choices that delay gratification (by paying their premiums now in return for an uncertain future outcome) and manage their exposure to risk.
Used successfully, the benefits of nudging may include increased sales, reduced fraud, or improved customer and employee satisfaction. Many insurers use nudging selectively: some, for example, use it to optimize digital solutions. Others have conducted structured reviews of the biggest business opportunities for nudging and deployed a few discrete use cases. Others have gone as far as anchoring nudging and behavioural science deeply in their organizational strategies by hiring experts and dedicated teams, or by creating management positions devoted to behavioural science.
Nonetheless, a huge amount of untapped potential remains. Focus areas where nudging could be deployed to improve customer and insurer outcomes include:
- Product design – built-in nudges can improve customer satisfaction and retention, while at the same time improving customer engagement by establishing ongoing touch points within the product lifecycle.
- Sales – deliberate and careful use of language – both written and verbal – can guide customers to make the beneficial choice and increase trust. Matching customer profiles to agent profiles can lift conversion rates. Appropriately timed reminders can fight against inertia.
- Claims – nudging can help prevent fraud and minimise risky behaviour.
- Ecosystems – nudging is a key tactic used by progressive insurers who have started to take advantage of the rise of ecosystems. By linking their insurance products with a range of complementary products and services, nudging customer utilisation of these services maximises the insurer’s alternative revenue streams.
How to get started?
“By knowing how people think, we can make it easier for them to choose what is best for them, their families and society,” wrote Richard Thaler and Cass Sunstein in their book Nudge, which was published in 2008.
But how do insurers know what their customers think? Well, market research will only ever tell us so much, and intention vs. action is a debate for another day! But certainly, a deeper level of customer insight is needed if insurers are to make full use of the value that is currently on the table.
The key to success is proactive, multi-channel customer communication around products and services that have appealing and intuitive touch points, and that generate insightful data. As digital natives increasingly form the core of new customer acquisition strategies, this will be enabled through seamless, omnichannel, real-time interactions within an insurer’s own platform or integrated within other platforms that customers already use frequently.
It’s still all about the customer
Such customer engagement or digital experience platforms will increasing become table stakes in an industry that has lagged behind nearly other industry – not least the likes of entertainment, travel and retail, where insurance customers of the future spend an increasing amount of digital time. Carriers will need to evolve how they work both internally and externally. Internally, IT, analytics, design, and business leaders will need to work in an agile manner to prioritize use cases and develop, implement, and continuously improve new digital and analytics capabilities. Externally, organisations will need to create a flexible ecosystem of partners to deliver parts of the new customer experience through a single point of access for their customers.
The outperforming insurers of the future will be the ones who get this right and first mover advantage will be crucial. With an open and trusted customer communication channel, they will be able to nudge themselves to a brighter future.