Consumers know that they should be protecting their ability to earn an income and agree that it is their responsibility to care for their family’s financial wellbeing, and yet roughly half of Australians are still putting off the need to act.
In understanding how to trigger this need to act now, it’s interesting to consider the take up of comprehensive car insurance, home and contents insurance and travel insurance.
For car and home insurance, the urgency to act lies in a tangible, everyday reminder of what needs to be protected (the car or home). The trigger is in your face, per se, and this motivates action. For travel insurance on the other hand the trigger (booking a holiday) and what you’re insuring against (misadventure) are quite separate. People are willing to pay a relatively high premium for a short period of insurance and the fact that what you’re insuring has a tangible cost surely plays a role in motivation here as well as having a clear trigger for action (booking a holiday).
For life insurance, we’ve seen that what people expect to be triggers for consideration are often actually the events you would try to insure against (loss of job, sudden illness or injury, financial strain). The things that you’re trying to protect – life and income earning capacity – are somewhat intangible concepts and it seems this contributes to unwillingness or delay in insuring them.
So, how can the industry motivate currently inert consumers to act and take up life insurance? There are two main alternatives:
- create a trigger through communications,
- or create a structural trigger.
In understanding how to create persuasive communications we can turn to behavioural economics, which identifies a number of potentially effective strategies:
Anchoring (the bias of relying on information provided to make a decision).
Many current communications in the market aim to utilise this effect by using risk statics to ‘scare’ people into action, but this is clearly not resonating with the non-insured.
Using anchoring to provide reassurance about the industry’s trustworthiness is likely to be effective. Survey results demonstrated that citing statistics on claim payout rates helps alleviate concerns that insurers always find ‘loop holes’ (and thus policies are not worth taking out).
Principle of herding and social norms (we are simply more likely to do what others do).
This technique only tends to be effective when the desired behaviour (purchasing life insurance) is the social norm, and with reported penetration at less than half the population, this technique is unlikely to be an effective strategy at this stage.
Loss aversion bias (people work harder to try and minimise loss than they will for potential gain).
Focussing on messages of reassurance, as many current communications do, is a tactic to help consumers feel that potential loss has been minimised. But as we’ve seen this is really only effective as a post-rationalisation for purchase and is difficult for non-engaged consumers to relate to (non-insured consumers underestimate the trigger potential of feeling the need to protect).
In addition, we can rely on existing structural changes in people’s lives and create a rationale for thinking about life insurance needs at this point of change.
A good example here is change of job. People often reconsider their superannuation needs upon change of job and try to negotiate employee benefits as well. Can we take advantage of this andencourage the need to consider yourlife insurance status when you change jobs (as part of employee benefits negotiations)?
John Brogden is the mentor in the No More Practice Investment Series. As the chief executive of the Financial Services Council – representing over 125 members who are responsible for investing more than $2.3 trillion on behalf of 11 million Australians, John draws on his experience to guide fund managers through their pitch to the Guardians.
