May 20, 2019 | By Heidi Alpren
Small changes can sometimes have a big impact.
This is particularly true in the realm of Behavioral Economics. At its core,
Behavioral Economics (BE) challenges the traditional economic theory that
individuals are sound and rational (“slow”) thinkers, by asserting that we
instead rely more on heuristics - or mental shortcuts - to make quick
judgments. Using comprehensive experiments, BE allows us to test ways to
encourage individuals to “slow down” this fast processing through simple
redesign and rewording.
When BE techniques are applied to insurance
applications, small changes in the way that questions are designed and worded
can lead to more thoughtful completion by the individual. This, in turn,
encourages an increased disclosure of medical conditions, resulting in a more
comprehensive view of the individual’s health. Ultimately, this additional
information and clarity can have a positive impact on the underwriting process,
mortality and morbidity results and company profitability.
Gen Re was at the forefront of this
research for the insurance industry, conducting a BE study related to
Individual Life insurance applications in 2016. This study successfully
determined several BE approaches to enhance an application and increase
disclosure rates simply through changes in question design and layout.
Traditionally, the insurance industry has relied
on a more tried-and-true approach to application design. For Individual Life,
companies widely use standardized application questions relating to medical
conditions.
In 2018, Gen Re set up a new BE experiment
to take another look at designs from the 2016 study, and to assess the
effectiveness of a standardized question design in encouraging medical
condition disclosure. This study used standard questions as a control group,
testing them against various “treatments,” or different ways of designing the
application questions. A sampling of U.S. residents, ages 30-60, was asked to
complete online life insurance application questions. Close to 2,500 online
applications were completed. Overall, six different question designs
(treatments) were tested across 12 medical conditions. The objectives of
the study were as follows:
·
Primary: Understand how
we can apply insights from behavioral science to increase an applicant’s
disclosure level for insurance
·
Secondary: Determine how
long it takes an applicant to complete the various treatments, so we can better
assess answers to the question, “What is the best combination of time and
experience of completing, versus understanding and overload?”
The results strongly supported what was found to
be most effective in Gen Re’s 2016 BE study: a 5-point scale question design
(see Exhibit A). The multiple-choice
options on the 5-point scale prompt respondents to actively think about each
medical condition, increasing their chance of remembering whether they have
ever been diagnosed. Moreover, the clear definitions for each option eliminate
the uncertainty respondents may have about whether they qualify as “having” the
medical condition.
Exhibit A:
5-Point Scale example
Have you ever been diagnosed, treated, tested
positive for, or been given medical advice by a member of the medical
profession for, a disease or disorder such as:
In comparison, the standardized questions used
as the control group were open-ended and asked individuals whether they had
ever been diagnosed, treated, tested positive for, or been given advice by a
member of the medical profession for a particular medical condition (for
example, “Any cancer, tumor, cyst or nodule” for cancer-related conditions).
This may require a level of medical knowledge beyond what can reasonably be
expected of someone who is not a medical professional and can create some
uncertainty or difficulty in recollection for individuals completing
the application.
In addition, although the 5-point scale
questions were one of the longest in terms of respondent time to complete -
averaging almost 8 minutes - condition disclosure increased by 4 to
8 times over the standardized (control) questions.
The standardized question format was the
shortest for respondents to complete, averaging just 2.34 minutes, yet it
was found to be the least effective question design in terms of increasing medical condition
disclosure.
By implementing a new design framework,
insurance carriers can improve not only the clarity of the application
questions but also the level of information that is disclosed by applicants.
While companies have much to consider when making changes to their
applications, the results of Gen Re’s BE experiments show that small changes
can have a big impact.
In addition to our leading Behavioral Economics
research, Gen Re also conducts numerous studies that benefit the
U.S. Group and Individual Life/Health insurance industry. Our wide variety
of industry studies, and our MarketChecks on key topics of interest, keep us at
the forefront of insurance research.
If you are interested in learning more about our
research capabilities, contact me.
http://www.genre.com/knowledge/blog/small-changes-big-impact-how-behavioral-economics-can-improve-life-insurance-application-medical-condition-disclosures-en.html?utm_campaign=Subscription%20Management%20Center&utm_source=hs_email&utm_medium=email&utm_content=72831661&_hsenc=p2ANqtz-8cFFjKUAkyVvp2bSyKL9NPYb4dY5q8HbA0n8hkiBZ11NRZrvINQrreHAxxarI9Opu8CY1rBelzcIfP0j9LYyjLTdaQwA&_hsmi=72831661
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