A research report entitled “Applications of Behavioral Economic Insights in the Insurance Industry” have been recently released by IRC that deals with such insights in order to identify customer behavioral discrepancies in the insurance industry, according to PRIAO.
In order for the insurance industry to increase the penetration rate, it must address the customer behavioral changes and focus on increasing demands. In a risky and uncertain environment, the selection of an appropriate policy is a complex decision that must be taken based on short term defined benefits and long term expected benefits. According to the findings of the present study, in uncertain conditions and while there exists a conflict between short term and long term benefits, behavioral inconsistencies (adverse selection against rational selection principles) will be more likely. The complexity of decision-making in real uncertain environment will increase the chance of using intuitive principles and mental shortcuts. Given the indefiniteness of the concurrent effects of behavioral biases and intuitive principles in decisions related to insurance, it is significant that some field and lab studies to be conducted in order to better understand the effect of behavioral biases on one’s insurance-related decisions.
Thus, it is assumed that with the help of economic behavioral insights, it is possible to identify the customer behavioral inconsistencies against any rational selection principle and any changes in the customer behavior in the insurance industry. In this report, some fundamental concepts of the behavioral economics such as preference reversal, present-biased preferences and the general attitude toward risk and uncertainty have been presented. It also demonstrates how with the use of such concepts, insurance policies can be developed that will be effective in customers’ behavior. There have been several models designed based on behavioral economic insights. One of the most frequently used models presented in this report is EAST model that stands on four principles of Easiness, Attractiveness, Socialness and Timeliness and its use in the insurance policy development could bring changes into customer behaviors and increase demands in the insurance industry.
If interested, please click here to obtain the full report.