Joanne Reinhard works as Senior Advisor at the Behavioural Insights Team. She is specialized in applying behavioral science to bring about behavioral change. In this blog she explains how insurers can stimulate honest behavior.
Creating a desirable image of ourselves is ingrained in us humans. It is what makes life bearable. Therefore we have a number of ways to make our behavior acceptable to ourselves. Our discipline studies these behavioral traits and how they can be employed to influence behavior in a positive manner. It mainly involves small changes that take advantage of certain behavioral traits.
Making insurance more honest
I will discuss several traits, as well as ways these traits can be used to reduce insurance fraud and more or less unintentional mistakes.
Firstly, it is important to realize that many people really do want to behave in an honest way. One of the most important insights our work provides is that a lot of unintentional fraud (‘errors’) can be prevented by simplifying processes. Simple language with a clear call to action is often enough to bring about an increase of the desired behavior.
We like to adapt our behavior to what we perceive to be the general norm. ‘Once in a while everyone makes a claim on their travel insurance for an expensive pair of sunglasses, it’s not in your own interest if you don’t do so too.’
Application: clearly state what the real norm is. Communicate, for example, that only one in ten people make a claim on their travel insurance. Suddenly, making a claim is less normal than it appeared. (Do take into account that the presented facts should of course be true.)
2. Lack of social trust
It is easier for us to misuse a regulation or insurance policy if we believe that the other party itself is dishonest. ‘I do not need to be honest, because the insurance company interprets every rule to their own advantage anyway, look at all that small print.’
Application: make sure your procedures are honest and transparent and show clients how their claim is processed. Also give examples that show that the rules are applied conscientiously, with the insured person’s interest at heart.
3. The Fudge Factor
We all have clear norms about what is allowed and what is not. Yet at the same time we often perceive a gray area between right and wrong: telling lies is not allowed, but a white lie is all right. Committing fraud is taboo, but lying about your age to save some money on your car insurance is not so bad, is it?
Application: you can prevent this kind of cheating by asking for exact information. For example, by asking clients for their exact date of birth rather than getting them to tick the box of an age category. Or by asking for the exact purchase price of the lost pair of sunglasses.
Committing fraud or displaying undesirable behavior is easier if it does not directly concern money. Having a crack in the windscreen repaired does not have a price tag attached to it and failing to turn up at the car repair company for the appointment does not seem to cost anything.
Application: convert the consequences of a lie back into money. For example, show the influence of making dishonest claims on the insurance premiums. Or communicate what the costs are of the mechanic that makes a call for nothing.
5. Scarcity leads to temptation
The chance of fraud increases with the feeling that we have only a little time left to ‘grab our chance’. “My insurance expires next month. If I drop my phone now, I can make a claim for it before it is too late.”
Application: it no doubt helps to pay extra attention to claims that are made when an insurance policy is about to expire. You could inform this group that you are watching out: ‘Did you know that we always check each claim?’ Also, the feeling of scarcity can be avoided by a policy renewal: maybe a good reason to make them an attractive offer?
6. Omission bias
For many people an omission is a lot easier than telling a lie. Not answering the question ‘Do you have problems with your eyes?’ is easier than having to declare ‘I do not have any problems with my eyes’.
Application: make it compulsory to answer certain questions with a ‘yes or no’ in order to extract a clear answer about certain relevant information.
7. Moral licensing
This is the sentiment that good behavior has earned you credit that makes fraud acceptable. ‘I have duly paid my car insurance for twenty years, so I can also include that scratch from parking the car in this claim.’
Application: is quite difficult. It is possible to remind people of their norms and values and show you appreciate their good behavior: “We have seen it, we appreciate it, it helps us to be a good insurer.” Here initiatives to pay back excess premiums to the insured persons or to charity could come in too.
And, does it work?
Yes, it often does. A good real-life example: the HM Revenues and Customs in Great Britain had to contend with a large group of defaulters. Making them aware of the norm (‘nine out of ten tax payers keep to the payment deadlines’) led to an increase in the number of payments and the amounts being paid. By using two randomly selected groups, it was possible to make a good assessment of the effect of using this phrase. There was indeed a causal and significant effect. In addition, we found that the more specific the message, the greater the effect.
And sometimes it does not work. It is always a matter of trial and error. The HM Revenues and Customs now has its own team of behavioral scientists that has made this their business, and with success. In the Netherlands too several organizations, including the Dutch government, have turned to behavioral sciences.
By all means, work together!
So, I recommend trying out many options and, above all, evaluating the outcome in a reliable way. It is best to undergo a learning process together: sharing experiences, outcomes and methods speeds up results. My conclusion: join forces, work together and share knowledge. In the end, the entire insurance industry benefits from fewer wrongfully paid out claims and fewer expensive fraud investigations.