Tag Archives: fast and slow

How Basis for Buying Is Changing (Part 2)

How fast is too fast in insurance?

Most insurers would probably say that the recognizable point of an insurance process being “too fast” is the point at which poor decisions are made regarding risk. If the risk is the same either way, then there is no “too fast.”

In my last blog in this series on how buying decisions are changing, we discussed some of our findings from the Majesco Future Trends 2017 report and talked about how a generational shift of market boundaries and technology was creating a culture of impatience.

See also: How Basis for Buying Decisions Is Changing  

In today’s blog, we’ll explore how insurers are coping with the need for speed, without compromising on risk. We’ll look at how product adaptation and a transformed framework will benefit insurers by positioning them to meet needs with immediacy. Because human decisions are being made faster than usual, it places the onus on insurers to create products that can be quickly and easily understood. It also means building a framework that supports quick evidence gathering, rapid data transmission, instant analysis and immediate transactions.

Why is speed filled with potential risk?

There are essentially two reasons why quick decisions can be bad.

  1. If an insurer takes a shortcut to provide quick coverage, it may be missing key information regarding risk. Is the insurer getting the data and information it needs in a timely manner, or is it more concerned with providing a decision in a timely manner?
  2. If the customer is making a poor decision to gain quick coverage or if the customer quickly decides against coverage, the customer could be at greater risk. Does the customer understand the choices, both in terms of insurers and products? Will the choice just cover risk or help the customer monitor and reduce risk?

Behavioral science and rapid decisions

In our last blog, we mentioned Daniel Kahneman’s book, Thinking, Fast and Slow. Kahneman describes human decision making and thinking as a two-part system. System 1 thinking produces reflexive, automatic decisions based on instinct and experiences. These are “gut” reactions. System 2 thinking is slow, deliberate and based on reason and requires cognitive effort.

In an ideal world, insurers would be able to help customers to slow down and make better decisions. That world, however, has rapidly disappeared because of new expectations set based on experience in other markets or industries.  Just consider Amazon continually resetting the bar.

So, it is incumbent upon insurers to rise to the new “speed” bar and create a new model for rapid, yet limited risk insurance decisions. This is a large part of what insurtech has been trying to disrupt. Insurtechs have been borrowing principles of speed, psychology and behavioral economics from other markets and industries to persuade customers to do business with them while they are making quick decisions.

The highest-profile use in 2016 was Lemonade, a startup darling.  The company recently announced national expansion plans and has been widely cited for its disruption of the traditional insurance business model with a new one grounded in outside-in, innovative business processes, sophisticated technology and behavioral economics principles. Dan Ariely, well-known author of Predictably Irrational and other books, has helped the company create a truly different insurance experience through both process and perception.

Lemonade changed the customer experience along the entire value chain, based on Ariely’s insights about people’s decision-making processes. The AI chat-driven application and claims processes use a few simple questions, pulling in data as needed from other sources behind the scenes.  Lemonade claims it takes 90 seconds to complete a purchase and three minutes to get a claim paid (though it has also extensively promoted a recent 3-second claim).  These simple, transparent and fast processes require less System 2 thinking by customers, creating a simplified and engaging experience while ensuring that the data used for underwriting is the most important, credible and accurate, rather than relying on human memory.

Auto enrollment, social proof and honesty pressure

At the macro level, government, academic and corporate efforts have focused on encouraging greater employee participation in saving for retirement by devices like automatic enrollment and default contribution rates for 401k plans, and improving individual health insurance plan decisions by reducing choice overload, among others. The UK government has a Behavioural Insights Team (BIT) nicknamed the “Nudge Unit” whose mission is to “use insights from behavioural science to encourage people to make better choices for themselves and society.”

At the micro level, companies like Geico employ principles like social proof (i.e. “people like you choose…”) to increase shoppers’ confidence and nudge them toward selecting specific products and closing the sale immediately. This kind of evidence is designed to quickly move people off the fence of indecision and into the security of the social community insurance fold.

Lemonade tackles the question of customer honesty by employing a social benefit component. The company takes a 20% flat fee off the premium paid, with the balance used only to pay claims, then gives any excess to a charity of the customers’ choice. This sets up a quasi-“moral commitment” for the customer to act in the interests of that organization (by behaving responsibly and not filing a claim that will reduce the benefit to the charity). By explaining the model up front, Lemonade gains the mental assent to honesty during the crucial application phase. An applicant isn’t just buying insurance, she is “buying into” a bigger promise that includes risk protection when needed and support of a worthy cause for every dollar unused for claims.

See also: How We’re Wired to Make Bad Decisions  

All of these efforts help make both fast decisions and good decisions, significantly reducing or eliminating risk to gain speed in the process.

Shifting up to the next gear

Seeing how changes to customer-facing engagement can both improve and speed up decisions, we’re now faced with the impact of those decisions on technology throughout the business. Is it possible for insurers to innovate fast enough to make quick decisions pay off? Because the need for speed touches so many different areas of the business, insurers wanting to rewrite decision methodology may need to act more like startups — innovating from the outside in. In the Future Trends report, Majesco advocates that insurers re-imagine the insurance business by creating a new business model that embraces the demographic, market boundary and technology changes rather than restructuring the old model.

The new ideal is a cycle of continuous insight and improvement that may bear unintentional yet valuable fruit. When an insurer transforms itself to meet the demand for quick decisions on its standard products, it will also be laying the groundwork for systems that will support new product development — products that currently lie outside its realm. Once an insurer is prepared to gather evidence quickly, quote quickly and engage with speed — then every insurable person, event or property becomes a new opportunity for business. It is within today’s fast-paced lifestyles where insurance is likely to find new lodes of business opportunity from unserved or underserved markets and customers. Insurers that understand the nature of good decisions in a time-crunched culture will meet new customer needs without compromising themselves.

For a deeper look at how lifestyle trends are affecting insurance technology decisions, be sure to read Future Trends 2017: The Shift Gains Momentum.

How Basis for Buying Decisions Is Changing

Building a business around speed and convenience is nothing new. Fast food drive-thrus, cell phones and FedEx overnight delivery services were just some of the predecessors to today’s Ubers, apps and same-day Amazon orders. But in most of these cases, purchase decisions were based upon simple factors — “I’m hungry,” or “We need delivery of a legal document,” or “Of course it would be nice to be able to make a call from my car.”

There were other services for which people understood that immediacy wasn’t an option. Many financial decisions took time. If you wanted to earn a little extra interest by using a certificate of deposit instead of savings, you would have to wait months or years for maturity. Securing life insurance was a multi-week (sometimes multi-month) underwriting process. Applying for a home loan with multiple credit and background checks took time. For the most part, people accepted these elongated processes and delays with resigned and good-natured patience. This was life. Important decisions required time, not only in the preparation, but also in the education and execution. Two hours with a life insurance agent would allow you to learn about all of the products available and understand their complexity, and it would help the agent to fit products to your needs. You valued the time spent learning, understanding and choosing based on the trusted relationship with your agent.

The convergence of generational shifts and technological advancement created a new mindset that rewrote expectations and priorities for many. Patience is no longer always considered a virtue. Insurance relationships are no longer always valued. Time-crunched people seek time-saving services. Value is seen in immediacy, uniqueness and ease.

See also: Innovation: a Need for ‘Patient Urgency’  

Enter the new generation of insurance companies redefining the insurance engagement. Lemonade, TROV, Slice, Haven Life and others who are redefining speed and value to a new generation of buyers … are placing traditional, existing insurers on notice.  From purchasing a policy in less than 10 minutes to paying a claim in less than three seconds … speed and simplicity are the new competitive levers.

Out of necessity, this has changed an insurer’s view of competition. Insurers used to know their competitors. They understood their distinctive value propositions. They debated on what were the real product differentiators. Insurers understood the reach of their agents, their geographic limitations and the customer and agent loyalty they could count on because of their excellent service.

While all of these factors still guide insurance operations, the competitive landscape has shifted to different factors critical to acquiring and retaining customers. Insurers are feebly groping for just a tiny bit of space in consumer minds —enough to plant the seed of need and just a little more to water the plant into engagement and completing a transaction — because today’s consumer isn’t going to listen well enough to grasp distinctive details. He or she is looking for an easy and quick fit.

A 2015 study of Canadian consumers estimated that the average attention span had dropped to 8 seconds from 12 seconds in 2000, driven at least in part by consumers’ constant connections through digital devices.

Need. Purchase. Done. Happy.

A 2012 Pew survey of technology experts predicted what is now coming true, “the impact of networked living on today’s young will drive them to thirst for instant gratification, settle for quick choices and lack patience….trends are leading to a future in which most people are shallow consumers of information.”

Only five years later, insurers are feeling the impact.

A key reason many of the new, innovative companies are appealing to consumers and small and medium-sized businesses (SMBs) is because they simplify and remove some of the cognitive effort required to make decisions about insurance. In his book, Thinking, Fast and Slow, the Nobel Prize-winning behavioral economist Daniel Kahneman described human decision making and thinking as a two-part system. Greatly simplified, System 1 thinking produces quick (i.e. instantaneous and sub-conscious) reflexive, automatic decisions based on instinct and past experiences. These are “gut” reactions. System 2 thinking is slow, deliberate, reason-based and requires cognitive effort.

In general, most of the decisions we make each day are through System 1, which can be both good and bad; good because it increases the speed and efficiency of decision making, and because in most instances the outcomes are acceptable. However, not all outcomes are good, and many could have been improved had System 2 thinking been engaged. The problem with System 2 is that it takes effort, and humans naturally try to minimize effort.

See also: Insurtech: Unstoppable Momentum  

So, a traditionally complex industry is intersecting with a cognitive culture that is mentally trying to simplify, reduce effort and be more intuitive. This has consequences for decisions throughout the customer’s journey with an insurance company. Good decisions about complex issues like insurance should be based on System 2 thinking. However, during the research and buying processes, the cognitive effort to do so can lead many people to choose other paths like seeking shortcuts to in-depth research and analysis or delaying a decision altogether.

In a recent report, Future Trends 2017: The Shift Gains Momentum, Majesco examined how impatience is driving a shift in behavior that is causing insurers to look at the anatomy of decisions. What behaviors are relevant to purchase? To renewals? To service? How can insurers still provide risk protection to individuals who won’t take the time to learn about complex products? We’ve drawn some of these insights out of the report for consideration here.

For one thing, insurers clearly recognize that the trends affecting them are far broader and bigger than the insurance industry. Businesses and startups across all industries are capitalizing on the lucrative opportunity afforded by meeting the ever-increasing demands for speed and simplicity made possible by technology and re-imagined business processes. Amazon Prime, Netflix, Spotify, Uber/Lyft, ApplePay/Samsung Pay, Rocket Mortgage (Quicken Loans), Twitter, Instagram and other technology-based businesses represent contemporary offerings that have simplified the customer journey.

Retailers such as Walmart, Best Buy, Staples, Amazon and even eBay are testing same-day delivery for items ordered online. Simplifying a customer’s entire journey with a company by making it “easy to do business with” is more critical than ever for insurers.

What is the good news in the world of impatience? Insurers are quickly finding ways to counter the disparity between the need for speed and the need for good decisions. They are also using a bit of psychology to positively influence decisions, and they are buying back some brain space with techniques that both inform and engage.

In Part 2 of this series, we will look at these techniques as well as product adaptation, framework preparation and planning for transformation that will meet the demand for quick decisions. For more in-depth information on behavioral insurance impact, download the Future Trends 2017 report today.