behavioural economics - chartered insurance institute · behavioural economics (be) two modes of...
TRANSCRIPT
![Page 1: Behavioural Economics - Chartered Insurance Institute · Behavioural Economics (BE) Two modes of thought: Intuition (fast, automatic, effortless, associative, difficult to control/modify)](https://reader030.vdocument.in/reader030/viewer/2022041023/5ed613fbbcb22c51e2620451/html5/thumbnails/1.jpg)
Behavioural Economics:
What is it and what does it mean for the
Insurance profession?
Paul Laughlin (former Head of Customer Insights, Lloyds Banking Group
Insurance & Scottish Widows)
![Page 2: Behavioural Economics - Chartered Insurance Institute · Behavioural Economics (BE) Two modes of thought: Intuition (fast, automatic, effortless, associative, difficult to control/modify)](https://reader030.vdocument.in/reader030/viewer/2022041023/5ed613fbbcb22c51e2620451/html5/thumbnails/2.jpg)
How we really make decisions
Would you rather…
A B
Take a 50% chance of
gaining £1,000 and a
50% chance of gaining
nothing?
OR
Gain £500 for
certain?
![Page 3: Behavioural Economics - Chartered Insurance Institute · Behavioural Economics (BE) Two modes of thought: Intuition (fast, automatic, effortless, associative, difficult to control/modify)](https://reader030.vdocument.in/reader030/viewer/2022041023/5ed613fbbcb22c51e2620451/html5/thumbnails/3.jpg)
How we really make decisions
Would you rather…
A B
Take a 50% chance of
losing £1,000 and a
50% chance of losing
nothing?
OR
Lose £500 for
certain?
![Page 4: Behavioural Economics - Chartered Insurance Institute · Behavioural Economics (BE) Two modes of thought: Intuition (fast, automatic, effortless, associative, difficult to control/modify)](https://reader030.vdocument.in/reader030/viewer/2022041023/5ed613fbbcb22c51e2620451/html5/thumbnails/4.jpg)
Behavioural Economics (BE)
Two modes of thought:
Intuition (fast, automatic, effortless, associative, difficult to control/modify)
Reasoning (slow, controlled, demanding, serial, rule governed, flexible)
![Page 5: Behavioural Economics - Chartered Insurance Institute · Behavioural Economics (BE) Two modes of thought: Intuition (fast, automatic, effortless, associative, difficult to control/modify)](https://reader030.vdocument.in/reader030/viewer/2022041023/5ed613fbbcb22c51e2620451/html5/thumbnails/5.jpg)
10 BE biases highlighted by FCA
![Page 6: Behavioural Economics - Chartered Insurance Institute · Behavioural Economics (BE) Two modes of thought: Intuition (fast, automatic, effortless, associative, difficult to control/modify)](https://reader030.vdocument.in/reader030/viewer/2022041023/5ed613fbbcb22c51e2620451/html5/thumbnails/6.jpg)
Present Bias
![Page 7: Behavioural Economics - Chartered Insurance Institute · Behavioural Economics (BE) Two modes of thought: Intuition (fast, automatic, effortless, associative, difficult to control/modify)](https://reader030.vdocument.in/reader030/viewer/2022041023/5ed613fbbcb22c51e2620451/html5/thumbnails/7.jpg)
Reference Dependence and Loss
Aversion
![Page 8: Behavioural Economics - Chartered Insurance Institute · Behavioural Economics (BE) Two modes of thought: Intuition (fast, automatic, effortless, associative, difficult to control/modify)](https://reader030.vdocument.in/reader030/viewer/2022041023/5ed613fbbcb22c51e2620451/html5/thumbnails/8.jpg)
Emotional Drivers
![Page 9: Behavioural Economics - Chartered Insurance Institute · Behavioural Economics (BE) Two modes of thought: Intuition (fast, automatic, effortless, associative, difficult to control/modify)](https://reader030.vdocument.in/reader030/viewer/2022041023/5ed613fbbcb22c51e2620451/html5/thumbnails/9.jpg)
Overconfidence
![Page 10: Behavioural Economics - Chartered Insurance Institute · Behavioural Economics (BE) Two modes of thought: Intuition (fast, automatic, effortless, associative, difficult to control/modify)](https://reader030.vdocument.in/reader030/viewer/2022041023/5ed613fbbcb22c51e2620451/html5/thumbnails/10.jpg)
Overextrapolation
![Page 11: Behavioural Economics - Chartered Insurance Institute · Behavioural Economics (BE) Two modes of thought: Intuition (fast, automatic, effortless, associative, difficult to control/modify)](https://reader030.vdocument.in/reader030/viewer/2022041023/5ed613fbbcb22c51e2620451/html5/thumbnails/11.jpg)
Projection Bias
![Page 12: Behavioural Economics - Chartered Insurance Institute · Behavioural Economics (BE) Two modes of thought: Intuition (fast, automatic, effortless, associative, difficult to control/modify)](https://reader030.vdocument.in/reader030/viewer/2022041023/5ed613fbbcb22c51e2620451/html5/thumbnails/12.jpg)
Framing, Salience and Limited
Attention
![Page 13: Behavioural Economics - Chartered Insurance Institute · Behavioural Economics (BE) Two modes of thought: Intuition (fast, automatic, effortless, associative, difficult to control/modify)](https://reader030.vdocument.in/reader030/viewer/2022041023/5ed613fbbcb22c51e2620451/html5/thumbnails/13.jpg)
Mental Accounting and Narrow
Framing
![Page 14: Behavioural Economics - Chartered Insurance Institute · Behavioural Economics (BE) Two modes of thought: Intuition (fast, automatic, effortless, associative, difficult to control/modify)](https://reader030.vdocument.in/reader030/viewer/2022041023/5ed613fbbcb22c51e2620451/html5/thumbnails/14.jpg)
Decision Making Rules of Thumb
![Page 15: Behavioural Economics - Chartered Insurance Institute · Behavioural Economics (BE) Two modes of thought: Intuition (fast, automatic, effortless, associative, difficult to control/modify)](https://reader030.vdocument.in/reader030/viewer/2022041023/5ed613fbbcb22c51e2620451/html5/thumbnails/15.jpg)
Persuasion and Social Influence
![Page 16: Behavioural Economics - Chartered Insurance Institute · Behavioural Economics (BE) Two modes of thought: Intuition (fast, automatic, effortless, associative, difficult to control/modify)](https://reader030.vdocument.in/reader030/viewer/2022041023/5ed613fbbcb22c51e2620451/html5/thumbnails/16.jpg)
Relevance to the Insurance industry
Insurance customers particularly likely to suffer from BE
biases when making insurance decisions because:
• Most consumers find insurance products complex & boring;
• Many insurance product decisions require assessing risk and
uncertainty;
• Insurance decisions often require trade-offs between the present
and the future;
• Many insurance decisions are emotional (inc. role of fear);
• It can be difficult for consumers to learn about insurance products,
due to infrequent interactions and long delay before or no experience
or the risk being mitigated.
![Page 17: Behavioural Economics - Chartered Insurance Institute · Behavioural Economics (BE) Two modes of thought: Intuition (fast, automatic, effortless, associative, difficult to control/modify)](https://reader030.vdocument.in/reader030/viewer/2022041023/5ed613fbbcb22c51e2620451/html5/thumbnails/17.jpg)
Potential for Good or Evil
“Firms play a crucial role in
shaping consumer choices
through product design,
marketing and the sales
process. Much consumer
detriment arises as firms
design and sell products that
benefit from consumers not
overcoming mistakes or, at
times, exacerbating
mistakes”.
FCA Occasional Paper 1
![Page 18: Behavioural Economics - Chartered Insurance Institute · Behavioural Economics (BE) Two modes of thought: Intuition (fast, automatic, effortless, associative, difficult to control/modify)](https://reader030.vdocument.in/reader030/viewer/2022041023/5ed613fbbcb22c51e2620451/html5/thumbnails/18.jpg)
Examples of the Dark Side
FCA have stated they will use these as early warnings:
1. Rip-offs: Uncompetitively high margins;
2. Suckers: Concentrated profits in small customer group;
3. Bargains: Innovative products that appear very cheap;
4. Traps: Contract features that often target BE biases;
5. Regret: Reported or potential regret;
6. Folly: Choices out of line with common sense;
7. Confusion: Observed or likely confusion.
![Page 19: Behavioural Economics - Chartered Insurance Institute · Behavioural Economics (BE) Two modes of thought: Intuition (fast, automatic, effortless, associative, difficult to control/modify)](https://reader030.vdocument.in/reader030/viewer/2022041023/5ed613fbbcb22c51e2620451/html5/thumbnails/19.jpg)
Ways to use BE to help customers
Customer Need
Ideal Outcome
Bias 1
Bias 2 Bias 3
Bias 4
![Page 20: Behavioural Economics - Chartered Insurance Institute · Behavioural Economics (BE) Two modes of thought: Intuition (fast, automatic, effortless, associative, difficult to control/modify)](https://reader030.vdocument.in/reader030/viewer/2022041023/5ed613fbbcb22c51e2620451/html5/thumbnails/20.jpg)
Final advice
• Avoid the hype, BE just helps with creating
hypotheses to test (not an exact science).
• Research is not dead, perception matters, eye
tracking & considering biases already best practice.
• FCA BE team understand this field well and are
keen to work with providers to test how to deliver
better customer outcomes.
![Page 21: Behavioural Economics - Chartered Insurance Institute · Behavioural Economics (BE) Two modes of thought: Intuition (fast, automatic, effortless, associative, difficult to control/modify)](https://reader030.vdocument.in/reader030/viewer/2022041023/5ed613fbbcb22c51e2620451/html5/thumbnails/21.jpg)
Paul Laughlin
Independent Consultant
Email: [email protected]
Twitter: @LaughlinPaul
LinkedIn: https://www.linkedin.com/in/paullaughlin
Any questions?