Life Insurance

'It's Life, Jim, but Not As We Know It' (Part 2)

The article below has been according to a keynote presentation delivered at the Euro Events Life Insurance and Pensions Conference in Amsterdam on Nov. 16 2019. This is part 2. Part 1 can be found here.

Summary of Part 1

Most customers do not buy insurance because they enjoy it. They buy it because they've to. This makes it difficult for providers to develop engaged and happy clients. The question is: Can you make the process of buying insurance something that customers actively engage in? Can purchasing a pension become an urgent, relevant, integral part of our daily life? Can long-term financial planning become as fast and simple as shopping online?

The answer is yes, but-. there are several important changes for insurers to create.

Insurers have to offer a broader, more relevant solution–with insurance as a component. Examples included integrated solutions for risk management and safety, health, housing, mobility or personal financial planning. In this scenario, insurers can become participants within an extended customer and supplier ecosystem and offer integrated solutions with higher customer engagement.

Part 2: Reconnecting with your customers

In this second part, we concentrate on the challenge of how to reconnect together with your customers – a vital to transforming insurance into an urgent, relevant and sexy product.

After the 2019 pension liberation in the U.K., some retirees couldn't handle their new financial freedom. There are even some reports that retirees were taking their newly available pension savings straight to the casino! Obviously, this was not the intended consequence of giving people more freedom in spending their pension money.

So how will you avoid these kinds of unwanted scenarios? How can you help your customers with highly complex financial products that may be not immediately relevant and often are without a direct benefit? It's not about giving freedom; it is about helping your customers make smart choices. Unfortunately, that is not as simple as it sounds. There is still a big engagement gap between insurers and their customers.

What are the key challenges we have to overcome to close this gap and reconnect with this customers? We will take a psychological view about this and touch on the number of key concepts.

The Theory of Planned Behavior

Helping customers make smart decisions isn't an easy job. How do we know if our campaigns and communications work? How can we respond to our customers’ needs? The theory of planned behavior can help answer these questions by predicting and understanding how customers act.

According to the theory, a person's behavior is predicted by his or her intention, which is in turn predicted by the attitude toward that behavior. This theory can be used to evaluate customers' general attitudes, their feelings about social norm pressure and their difficulty in achieving the desired behaviors.

This theory can be used in a wide number of areas and could be particularly useful when the desired behavior doesn't result in immediate benefits. One such example may be the Dutch government’s campaign to stimulate better health behaviors of young adults toward smoking. By using the slogan “Maar ik rook niet!” (at least I don't smoke!) the federal government hoped to change general attitudes and social norms to drive more healthy behaviors.

There may be similar benefits for financial planning. This task can often lack urgency, resulting in customers procrastinating over their decisions. However, providers can respond by creating better customer awareness and positive attitudes toward their financial planning products.

Although this theory is already used in numerous fields, it surprised us that we couldn't find clear-cut examples of its application in financial or pension planning. We are interested in exploring this is more detail and welcome you to definitely share examples with us.

The Dynamics of Inertia

In psychology and economics, inertia refers to the tendency to remain passive, even in the presence of good reasons to become active. Several companies are well conscious of this tendency: That's the reason we get the first 8 weeks for free at our internet provider and we pay 50 euros a month for a gym we never go to. These providers are very well aware that our inertia will prevent us from canceling the subscription.

When you translate this thinking to retirement savings, there has been extensive research around the mechanisms underlying inertia/underlying mechanisms of inertia. Life and pensions insurance requires you to make long-term decisions under changing and uncertain conditions that do not result within an immediate state of happiness or fulfillment. This will cause people to avoid or postpone retirement preparations for as long as you possibly can. So even if you do understand and appreciate the long-term advantages of taking action, it is much easier to remain passive. So how can you beat it, this inertia?

Aegon started in 2019 with its Future Fit Strategy. The purpose is to become the “customer-based company from the future” by enabling people to make self-conscious decisions on their financial future. For that organization, this means doing the right things in the best possible way for their customers.

Alternatively, you can try to provide immediate incentives by addressing the individual. For instance, Nationale-Nederlanden challenges you to create an image from the future you and explains that to attain the goals you've set for later you have to get moving now. The company effectively asks you to think about how exactly you would like your future life to look like, and what can you do about this NOW to reach those life goals.

Financial anxiety

The top source of anxiety, according to the Stress in America Survey, is money, followed closely by work and the economy. These three factors clearly are causes of financial anxiety. People who experience financial anxiety have a bias in processing information and are more prone to use avoidance mechanisms.

One method to deal with financial anxiety is gamification. Gamification moves away from conventional enterprise communications toward personalized, easy and playful interactions. For example, Mint.com is a tool that aims to demystify financials and future planning by incorporating simple and more entertaining elements to making decisions. These include goal trackers, visual breakdowns on spending habits and budget allocation and simple charts displaying exactly the same data as spreadsheets but inside a much more appealing and easily accessible manner. This causes it to be simpler to know exactly where your money is going every month.

Another method to address financial anxiety has been created by U.K. pension communications agency Pension Geeks. The company started with an annual Pension Awareness Day, including a bus being driven across the country to inform and support the public with their financial planning. The organization is using several techniques to make it fun and understandable with video's animation, games and apps to make pensions accessible for all.

Conclusion

The second approach to turn insurance into a product customers actually want to buy is to reconnect with your customers. There's still a large engagement gap between insurers and their customers. When trying to change people's behavior, the most important thing is to know people’s needs, to pay attention to what they want and to respond for their current behavior. Then, you've got a chance to overcome the dynamics of inertia and financial anxiety.

The third a part of this series to alter insurance right into a product customers actually wish to buy will bring the insights of Part 1 and Part 2 together.

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