Behavioral Science and Product Development

Life insurance’s central conundrums are no secret: Products are difficult for the average consumer to understand, sales and underwriting processes are neither simple nor speedy, and efforts to improve these two aspects have generally been less than effective.

Behavioral science research has been quantifying and qualifying how its tools and concepts can enhance, simplify, and strengthen life insurance products and processes, enabling customers to have greater comfort with the purchase process and carriers to reduce their risk as well.

Humans can often act in ways that are surprising or may seem irrational. More often than not, we can be subject to our emotions even when logic and rationality might serve us better. And behavioral science research has shown that product and process designs are generally the most effective when focused on how people actually behave, not how the designer wishes they would behave.

Compare the different ways of incorporating behavioral science into insurance product design, if you will, to the work of a mechanic and that of a mechanical engineer. It is possible for behavioral science to function as would a mechanic – tweaking or adjusting processes that already exist. However, behavioral science can be a far more effective strengthener of underwriting and claims processes if it can be part of the engineering of a product as early as possible. 

• Proposition sales and marketing
• Underwriting and pricing
• Ongoing customer engagement

Proposition Sales and Marketing

This refers to developing and issuing the right product, at the right time, into the right sales channel and within the right context. In proposition development, the idea behind a product is designed first, before actual product design commences. Creating products suitable for their intended markets is but one part of the challenge. Finding the right predictive moment, when a customer might be more emotionally receptive to that product, and offering the product in the right channel, to which a customer is most likely to be maximally receptive, are also important. 

Behavioral science can also enable assessment of market response to a new product’s concept and benefits. Voice of the Customer (VOC) surveys can glean vital information about customer attitudes and viewpoints about particular benefits and pricing. Persuasion models can also help insurers formulate and frame persuasive messages for their products, and testing the messaging can show how the options are received. All of this can feed positively into product and process design, enabling fine-tuning prior to release. 

A recently developed critical illness product with a new juvenile development disorder benefit, for example, was a challenging sell, as new parents were not particularly open to considering that their newborn could later have a developmental disability. VOC canvassing, however, helped position and anchor the benefit in terms of a child’s educational future, which was a powerful way to help parents recognize the benefit as one that might be worth consideration and ultimately a purchase. 

In another example, RGA partnered with a client to improve customer comprehension of life insurance quotes and increase decision-making confidence. RGA helped redesign quote letters and policy summaries using key behavioral science techniques to make them simpler and more emotionally engaging and provide clearer calls to action. Every behaviorally enhanced quote letter and policy summary improved comprehension, with the most effective increasing the median comprehension score by 60%. 

Underwriting, Pricing, Claims

These are the core elements of any insurance product, and the most essential to get right. Behavioral science can enhance and strengthen questioning processes, yielding more effective underwriting, pricing, and claims assessment and management. 

• Keep it simple: Application and claims questions should be clear, using simple language that can be grasped quickly. Fewer questions are ideal, but not the most important goal: As long as the questions are clear and can be answered quickly and easily, underwriting should be smooth.
• Keep it safe: Formulating questions that are emotionally neutral, especially around concepts that carry stigma (such as weight or substance use), can be a substantial challenge, but necessary in order to ensure applicants are comfortable with the underwriting questions.
• Keep it smart: Insurers must consider what information a question conveys to the applicant. An ongoing risk management challenge for insurers is how to formulate effective questions that do not point toward the applicable underwriting rule. If the underwriting rule is implicit in the question, it may be easier for those who want to non-disclose to ensure coverage or gain a cheaper premium.

Applying these principles successfully can speed and simplify processes for both in-person and automated underwriting. 

On the claims side, return-to-work incentives for disability income products present an additional opportunity. Behavioral science research has shown that focusing efforts on claimant goal-setting and goal-striving – i.e., the claimant’s true goals and how they can be reached – can enhance and improve return-to-work processes and durations. 

Ongoing Customer Engagement

Two central challenges for any insurer are how to keep the customer on the books (i.e., reduce lapsation) and keep the customer healthy (i.e., reduce risk). 

Effective customer retention requires more than facilitating customer engagement. If the sales process emphasized speed, and customers were not emotionally engaged at the point of sale, high lapsation could be one of the resulting issues. Here, thinking like a mechanic can be helpful – was the sales process effective, or could it be adjusted for greater future effectiveness? 

Behavioral science can collect the data and provide the analysis to help life insurers determine where problems exist in their sales, underwriting, and customer engagement processes, and how they can be improved. 

Keeping policyholders healthy – that is, good risks – is now frequently offered via wellness programs, which strive to facilitate behavior changes that can yield better health outcomes.

Behavioral science tools can help insurers design these programs to provide real value for the customer as well as the insurer by ensuring the program’s goals do not have inadvertent internal conflicts and relate well to both customer and insurer goals. 

Bottom line: Behavioral science is not a panacea, but its many tools, validated by rigorous research, can help insurers develop products that can be more effectively sold, underwritten, and supported.