Behavioural science is a rapidly expanding field which has the potential to influence and inform insurance solutions. With increasing understanding of the benefits that behavioural science can provide to businesses, attention has shifted towards learning how insights can be utilised to better understand customers and companies.
Behavioural science brings together insights from psychology and economics and, using a scientific and evidence-based approach, applies them to consumer decision-making and behaviour. With a strong foundation in scientific research, behavioural science fosters and encourages experimentation.
How is behavioural science relevant to insurance and AIA Australia?
A growing body of research is helping to affirm the value of behavioural science across many industries. It could be argued that it is particularly relevant in life insurance, where a number of behavioural biases impact a customer’s ability to make insurance decisions, including:
- Understanding of probability and risk: Making a decision requires an understanding of probability and risk, which people can find challenging as often people overweigh low probability events and underweigh high probability events.
- Infrequent feedback: Generally, decision-making improves when people receive feedback on the outcome of their decisions, particularly if it is feedback received by experience i.e. the consequences of a decision. In life insurance however, customers only tend to receive feedback when they go through the claims experience, and
- Choice overload: There are several choices that customers need to make when purchasing insurance, including the type of product, different benefits, funding structure and the amount of cover they require; this creates choice overload and leads to choice paralysis which means people don’t make any choice at all.
At AIA Australia, we use behavioural science to empower our customers to make informed decisions about their health, wellbeing and insurance. We recently conducted an experiment to explore how behavioural science can be applied to improve customer comprehension and confidence in life insurance decisions.
The Behaviour Science Experiment
The behavioral science team ran a a framed field experiment – which is a randomised control study that simulates real world decision-making in order to test how behavioural science concepts such as social norms, price framing, transparency and reassurance impact customer comprehension around insurance, clarity about what they can claim for and perceived confidence in their decision. The experiment was conducted with 3,509 Australians who each went through a simulated online life insurance jouney. Participants were allocated to one of fourteen different behaviourally designed versions of the journey. After each participant had been through the journey of selecting a life cover option, they were asked questions to help ascertain their level of understanding of the types of cover and the pricing, perceived value, quality and relevance of their chosen cover. In addition, metrics such as click-through rates and conversions were tracked.
The results of the study are as follows:
- The findings indicated that all behaviourally informed tweaks to the original online journey improved perceived customer outcomes around fairness, comprehension and relevance.
- Operational transparency – applied by showing the benefits and trade-offs of choices increased perceived clarity of cover for claims by 30% when compared with the original journey.
- Choice reassurance – applied by giving customers the opportunity to ‘test drive’ their poilcy and change their mind, increased comprehension by 24% and claims clarity by 30%, and
- Overall, there was a positive relationship between conversion and comprehension, suggesting that an increased understanding of insurance is key to driving uptake.
Behavioural science has come a long way, but there is still so much growth to come. With insights and testing providing value to businesses globally, an informed understanding of the psychology behind decision-making is increasingly sought after. The application of behavioural science insights and concepts can be useful to many areas of business.
If you would like to know more about how behavioural science can help your business, please contact your AIA Strategic Partnership Manager.
This is general information only and does not take into account your individual objectives, financial situation or needs. You should assess whether the information is appropriate for you and consider talking to a financial adviser before making any investment decision.
‘CommInsure’ is a registered business name of The Colonial Mutual Life Assurance Society Limited ABN 12 004 021 809 AFSL 235035 (CMLA). CommInsure Investment Growth Bond is issued by CMLA. A copy of the CommInsure Investment Growth Bond Product Disclosure Statement is available here.
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