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Life insurers’ secret weapon: Behavioral economics

How behavioral economics can drive middle market growth in life insurance

OVERVIEW

Life insurers know that value is trapped in the middle market. Pursuing it could mean up to $12 billion in revenues and half a billion dollars in profit annually. Yet over the last 40 years, most traditional agents have migrated to the more affluent market where commissions are higher.

To overcome middle market barriers and grow new revenue, insurers must create activation points—or buying triggers. Behavioral economics, coupled with digital technologies to drive engagement, can help. Insurers can tap into human psychology, emotions and social dynamics that drive how, why and when we make choices to meet unmet needs.


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KEY FINDINGS

Life insurers have a complicated relationship with the middle market.

LIFE INSURERS COULD ADD NEARLY 8% GROWTH TO THE OVERALL MARKET—NEARLY TRIPLING ITS EXPECTED GROWTH RATE—BY ADDRESSING THE MIDDLE MARKET PROTECTION GAP

A supply-demand mismatch.
Middle market consumers have a need. But insurers are not there to fill it. This dynamic translates into potential financial hardship for people and missed growth opportunities for insurers.

35% OF INSURERS PLAN TO USE HUMAN BEHAVIOR EXTENSIVELY TO GUIDE THE DEVELOPMENT OF NEW CUSTOMER EXPERIENCES.

The absence of triggers.
The absence of agents creates a void of activation points during the sales process, which is why existing direct models have not functioned well. Without someone or something motivating a consumer to buy life insurance, it is too easy to put it off.

BEHAVIORAL ECONOMICS STUDIES HOW EMOTIONAL, PSYCHOLOGICAL, SOCIAL AND COGNITIVE FACTORS INFLUENCE PEOPLE'S ECONOMIC DECISIONS.

Behavioral economics at work.
Insurers can unleash the middle market by combining behavioral economics and digital channels. Digital channels, including online, mobile and call centers, make agents more efficient, and create virtual touchpoints in the moments that matter.

RECOMMENDATIONS

Life insurers can apply these fundamentals to get started with behavioral economics.

Experiment with gusto

Experiment with gusto. To understand where and how to use the theories for the greatest impact, insurers will need to innovate based on market response.

Put eggs in many baskets

Put eggs in many baskets. Insurers today will need to use multiple behavioral economics theories to influence buying decisions.

Be there for customers more often

Be there for customers more often. Insurers need a new sales and marketing operating model that enables the right combination of digital, direct and more remote agents to provide advice, guidance and activation points.

AUTHORS AND CONTRIBUTORS

CONTRIBUTORS

Nicholas Melvin      
Priyanka Wadhwa      

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