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Nudge Theory and Insurtech – Happy Bedfellows?

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Richard Thaler’s Nobel Prize-winning “Nudge Theory” is finding its way into tech and, specifically, insurtech.  Will this be a happy relationship, or cause for putting up fences?

Coming together…

Thaler contends that (1) positive reinforcement and (2) indirect suggestion can affect the way humans think and behave, and therefore the outcomes of that behaviour.  On the other side, insurtech, at its simplest, is defined as being the use of technology and innovation to help drive savings and efficiency. It now seems that some insurers are bringing these two nascent disciplines together in an effort to drive better outcomes and reduce cost, in this case, claims.

Two examples of this fusion of new ideas were referred to in a recent Reuters article.

Aviva is  working with a health app, Tictrac, as a corporate healthcare plan add-on, which tracks employees’ sleep patterns, exercise and weight. The app then suggests (presumably physical) challenges to help prevent the onset of what might become costly conditions – “nudging” individuals to do something before a problem occurs.

The second example is a telematics-fed app capable of detecting voice patterns.  If these suggest the driver is getting tired,   the app recommends the driver pull over, grab a coffee, and take a break.  The insurer would even be willing to pay for the coffee in the hope of offsetting a costlier accident.

Enter the world-weary insurance customer…

Insurers dabbling in trying to help customers avoid something that they, the insurers, would eventually end up paying out on is always something of a cleft stick in a consumer market already cynical of insurers’ motives.

It’s possibly even more tricky when, despite assurances to the contrary, the consumer might feel like their personal life, in the case of the health-related app, is being pried into and monitored 24/7. Telematics evolving to listen out for speech patterns is likewise surely another step up the “compromising of personal privacy” ladder?

Is something missing?

For me, widespread consumer interaction with, and benefit from, insurtech has to be a natural, transparent, consequential occurrence, not something that requires the installation of a device, or a leap of faith that your personal habits and motivations are not somehow covertly being tapped-into.

I have no doubt that insurtech will provide the layer that helps consumers and their product/service providers understand each other at a level that will inevitably result in better product design and lower operational costs. That may even see premiums eventually fall.

However, in my opinion, that requires the “tech” part either to flow seamlessly into established methods of transaction, or to wash away convention completely and establish an entirely new, open and much more intuitive way of interaction between the parties.

Where are we and where to go?

At the moment, we seem to be in that “in-between” stage in many cases.  At best, this results, in lower take-up rates of new tech, affecting the potential for longer-term benefit.  At worst, this could drive prejudicial consumer skepticism; i.e.,  that tech is taking advantage of data to the sole benefit of the service/product provider.

Insurers are bound to take the lead with insurtech, and that means they will drive the agenda. However, before following an insurer to adopt their creation, consider carefully whether that opportunity results in benefits for all relevant parties and, if so, is it the most practical, business-led way of achieving it.

Just as importantly, how do you go about understanding your own (not the insurer’s) customer satisfaction, and how do you build in the capability from the start to make changes based on the feedback you get?

 

Editor’s Note: Neil Huzinga is Founder of Arun Bay Ltd., Neil and his colleagues provide  consulting services to smaller insurance businesses. ca.arunbay.com

 

 

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