In underwriting, the ability to obtain accurate health information from an applicant is paramount. The practice of asking people to report their health has been perfected over decades, yet under-reporting remains an issue in markets around the world. This leads us to consider: is it something about the way we ask the question?
How do we currently express our expectation to applicants so that they'll provide honest, accurate answers to underwriting questions? Most often, an honesty declaration for them to sign at the end of the form, combined with warnings that misrepresentation, may affect their ability to make a claim.
These tools, understandably, talk to the "rational" parts of our brains; the parts that say, what harm will lying do? How would they find out I'm not telling the truth? They also assume that any misrepresentation is intentional and deceitful. Thus, according to rational traditional economic theory of human behavior, these warnings should effectively discourage under-disclosure.
However, behavioral economics, the field that integrates elements of psychology into economic theory of human behavior, opens our eyes to several other possibilities. Due to the fact that the vast majority of our daily decisions are made using our automatic, subconscious brains, the failure to give a truthful answer to a health question may result from the influence of the context at the point that we are answering the question.
I'm a behavioral psychologist in the Research and Development Team at Swiss Re. We're busy applying concepts from behavioral science to the everyday behaviors associated with insurance to help our clients better understand what drives the behaviors of customers, medical professionals and agents. One key area of application is underwriting, where rethinking how we ask the question is proving quite useful for getting our heads around the issue of under-disclosure.
Assuming that an applicant is using his or her automatic brain when filling in an underwriting form, there are several possible reasons why he or she might not give a truthful answer. Here are a few examples:
The question is too complicated or requires doing a calculation.
We ask applicants to remember things from a long time ago.
We make it obvious what the "right" and "wrong" (read "expensive") answer is.
We guide applicants toward particular answers by putting cues in the question, or in the response options.
We don’t make it necessary for the applicant (or agent) to read the whole question before just ticking "no."
Of course, not every underwriting form has all these issues, and similarly, there isn't enough evidence yet to say that removing these problems will result in more accurate disclosure. However, we're getting one step closer by making systematic changes to underwriting questions and tracking the changes in disclosure. Just some of our successes have included increasing disclosure of health behaviors by providing applicants with a greater number of response options than just "yes" and "no" and changing the placement of the honesty declaration.
The premise of behavioral economics is that you can't ask people to tell you what drives their behavior, you have to observe them live in the field. We know that changing and filing an application isn't as straightforward in some parts of the world as it is in others, but when the opportunity arises, changing the way we ask the underwriting question could help our applicants give more honest and accurate answers and perhaps one day, make a difference in the premiums people pay.