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20 Oct 17 15:45

Professor Richard Thaler has just been awarded the Nobel prize in economics. But here's the thing: he's a behavioural economist, a field that until relatively recently was dismissed by traditional economists as nothing more than voodoo science.

Challenging the core assumptions of economics (that humans are rational agents who always seek to maximise their utility), Prof Thaler's most important contribution to economics is, in his own words "the recognition that economic agents are human, and that economic models have to incorporate that."

Thaler is probably best known for his best-selling book Nudge, and for the so-called "nudge-units" that subsequently have sprung up in governments around the world, which were largely inspired by his work. Through their field trials, they have demonstrated that small contextual tweaks (nudges) can significantly affect people's behaviour, such as their likelihood to pay their taxes, become an organ donor or attend a medical appointment.

But why should those of us who work in insurance care? Most of us aren't economists, are we?

Well here's the catch: within insurance companies, most people fall back on traditional economic assumptions when it comes to winning over customers – that is, that we assume we can convince customers to buy through rational means alone. Confused why customers aren't buying insurance? Focus on reducing the price, develop new products, and give customers more information about the benefits – that should fix it!
Except it doesn't. Or at least not fully.

In his 2015 book Misbehaving, Thaler explains that there are many Supposedly Irrelevant Factors (SIFs) which often turn out to be anything but irrelevant. In fact, they often are the main cause for people to take action (or not). For example, the framing of an option, what your neighbours are doing, or the default (all SIFs) can actually make a huge difference to your behaviour.

This fits with what I have been learning, as a behavioural scientist within Swiss Re  – that small "supposedly irrelevant" tweaks can make a big difference to customer behaviours, such as completing a sale, renewing a policy, being accurate about their health, or even just returning a letter.

More worrying is Thaler's observation that "the reluctance to experiment, test, evaluate and learn is all too common. I have continued to see this tendency in business and government". His conclusion is simple: "We must continue to run trials and continue to test ideas, because there is no other way to learn what works."

We agree. And I'm proud to say that's exactly what we're doing across the Life Capital businesses of Swiss Re, applying behavioural economics to help improve our everyday interactions with customers at iptiQ, ReAssure and elipsLife

 Intrigued? Get in touch.

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Location: London, United Kingdom


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