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January 16, 2020

Why Buying Insurance Is Like Dieting

Summary:

Buying insurance is an act of delaying gratification, like dieting. It's hard--but insurers can nudge customers in the right direction.

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Have you heard of the marshmallow test? A marshmallow is placed in front of a kindergarten child, and an offer is made; you can eat this marshmallow right now, or, if can wait for 15 minutes, you will get a second one. This experiment, which sounds quite simple, provides invaluable insights about the self-control dynamics of humans.

The experiment was conducted first in 1960, and the results have been evaluated over the years. It was found that kids who were able to hold off a long time without eating a marshmallow were more likely to have higher SAT scores. Similarly, in their adulthood, these people had a better body mass index, more self-confidence and less tendency to be addicted.

Studies also show that delaying gratification gets harder under stress and keeps getting harder, the longer you delay. If you realize that you forgot your entrance card after driving in terrible traffic in the morning, you will be defenseless against dessert at lunch.

Buying insurance is an act of delaying gratification, like retirement saving, dieting or avoiding sugar. It takes real self-control to spend your money on a product that you don’t enjoy when it is not mandatory. Delaying today’s pleasure for a possible future benefit, buying car insurance instead of a new phone….

So, if buying insurance is an act of delaying gratification, how can you help your customers on this issue?

See also: Is Buying Insurance Like Ordering Food?  

Develop Desired Products

Perhaps be a supporter on good days rather than just compensate for the bad days? Why don’t life insurance companies try to make their customers’ life happier? At least they could send them a cake on customers’ birthdays.

Enriching an insurance product with benefits that can be used immediately can also help customers to delay gratification. Offering free car washing service once a month to your car insurance customers will definitely make them more satisfied with their purchase.

Ease Purchasing

Did you know that we suffer physical pain when making any payment? Neurofinance studies show that spending money activates the areas of the brain associated with physical pain and feelings of disgust. And the activation is much more when payment is in full view. Ask your customers to pay in cash, if you want to make your customer suffer. PayPal, mobile wallets and contactless payment are much kinder solutions.

Know Your Best Customer

The best insurance customers are those people who make regular savings, eat healthily and do volunteer jobs for the community. Why? Because those people have enough self-control to delay daily pleasures. As they are aware of their responsibilities, they will be more likely to purchase insurance. They will also do their best to avoid risks. Identify this customer segment and flag them as the best customers.

Appreciate the Will

Being appreciated strengthens our will, motivating us to be more responsible. Insurance companies should appreciate their customers both emotionally and financially.

The health insurance company that appreciates customers with emails for being careful about pursuing a healthy life would increase customer satisfaction. The insurance company that gives small gifts to customers who have not any claim for years would likewise be rewarded with customer loyalty.

Knock on the Door at the Right Time

High stress leads people to instant gratification. Long-term plans are usually made in quiet moments. If you are not able to check the pulse of your customers by using a wearable device data for now, don’t worry. Just call your customer in the morning instead of evening after a busy work day. Speech emotion recognition systems are also powerful tool that should be used in call centers.

See also: The Behavioral Science on Buying Insurance  

Automate Decisions

Delaying gratification is a real struggle when you do it the first time. We struggle mentally, but it becomes easier the next time, and finally it turns into a kind of habit. Our brain automates the action, so we don’t have to spend our self-control power.

It is difficult to get consumers to adopt the insurance purchasing habit, so there is bloody competition for the customers who already have this habit. Customer acquisition is silver, but retention is golden.

Insurers rely on insurtechs for the technological transformation of the industry. But first the industry needs a customer-oriented transformation. This may be possible by understanding the emotional and behavioral tendencies of consumers.

Thanks to Walter Mischel, who inspired this article with research for more than 50 years on delay of gratification and self-control.

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About the Author

Hasan Meral is the head of product and process management at Unico Insurance. He has a BA in actuarial science, an MA in insurance and a PhD in banking.

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