In yesterday’s daily edition of National Underwriter, I covered some findings by Steven N. Weisbart, a senior vice president and chief economist for the Insurance Information Institute, who pointed out in no uncertain terms that the recovery from the 2007-2008 recession was different from any before it for the last few decades. Most importantly, we are going to feel the pain from this one for a few more years, it looks like, and the diminished spending power that’s inflicting upon consumers of all levels is going to ultimately end up hurting L&H sales too, especially for companies that cannot figure out how to adapt to new economic realities.
Weisbart went on to describe how the deluge of information drowning consumers was making it too hard for them to make a sound decision when it came to health insurance, life insurance and retirement planning. As a result, those who weren’t just throwing up their hands at it all were grousing to their local representatives, who in turn have been seeking regulatory action against the industry to make their client interactions easier to understand. Sound familiar?
To combat this, Weibsart noted a number of regulatory approaches, ranging from new SEC rules to make the expense charges on 401 (k)s more easy to understand to new mortgage rules from the Consumer Financial Protection Bureau to educate people who really know nothing about the mortgaging process. This initiative Weisbart bore monitoring, Weisbart said, as it didn’t take a big leap to go from people being unable to understand mortgages to people being understand insurance (which they generally don’t). He saw this as a possible avenue for regulators to impose their will on the insurance industry, all in the name of consumer clarity. He’s got a point.
What the industry needs to do, Weisbart said, was to capitalize on this trend and do a better job of presenting information. I wholeheartedly agree. Insurance is not a topic consumers are particularly keen to discuss, and so it tries very hard to make the products and the reasons for buying them simple and easy to understand. It might work for a commercial, which may get you to speak to a local agent, but when it comes down to actually considering a policy, the data before the consumer is both voluminous and unsexy.
That’s right. Unsexy.
The point here is that the insurance world needs compelling design throughout everything it does to engage consumers on a more subconscious level. I’m not talking about flashy or heartfelt advertisements, but engaging designers to really dissect what these products are all about and design compelling visual presentations for them that tell consumers the information they really want and need to hear, all while doing so in a format that doesn’t make it seem like work. This is all easier said than done, of course, but Weisbart stressed that without a stronger sense of design throughout the insurance industry, how can the industry hope to capture the imaginations of its consumers? Strong design is the industry’s way to say, “we understand what you need, so here are your choices, and here it is explained in a way that you understand.”
Coming from the publishing world, the need to marry content and design is a major concern, so I get where Weisbart is coming from, just as I get that the insurance world will have a hard time with this one. There are not that many examples of insurance literature, for example, that I would consider to be triumphs of design. I have always been a fan of Swiss Re’s publications, in part because they are very well designed. (They are simple and stark, but well designed.) But they are an exception and frankly, it also appeals to me as an insurance geek. The average person, if they saw a copy of sigma, would probably not pick it up. That’s no slight on sigma necessarily, I think it’s a comment on the huge chasm between the density and sophistication of insurance products and information versus the low expectations most folks have to be mentally challenged over anything at all.
Weisbart was aware of this, and it’s probably why he segued into a compelling discussion on behavioral economics, a subject that drew a whole lot of comments after Weisbart was finished presenting. Behavioral economics is a relatively new science (only about 10 years old), and it rejects the notion that people are essentially rational decision makers that make the right choices. On the contrary, people almost never are rational decision-makers, and behavioral economics seek sot understand these more instinctive decision-making processes and take advantage of them. For the insurance world, Weisbart said that looking at L&H products through a behavioral economics lens, it becomes obvious that a lot of these things have been designed with the insurer in mind, rather than the consumer.
For example, health plans never offer to reduce or eliminate the co-pay for policyholders if they take all of their medication in a single prescription. But why not? After all, most people never consume a full scrip, even though that by doing so, they dramatically increase their odds of getting sick again. Kill copays for diligent medication, Weisbart said, and that small investment turns into huge claims savings by incenting patients to get better and avoid getting sick again. But of course, the industry is planning to do just the opposite, and for what makes perfect actuarial sense. But it will never get consumers to engage the industry’s products more enthusiastically, and that’s the bigger picture the industry seems to be missing.
Another behavioral example is to take a nod from the car industry, which learned that even if you have a million options to provide to your customers, what they really only want is three or four compelling options, so bundle the best options together and sell them that way. Rather than trying to sell life products ala carte, why not bundle them together as a large-scale income insurance plan (which is all life insurance really is nowadays, Weisbart said) that combines a standard life, disability and annuity combo policy? It seems simple, but the lack of products on the market that actually do this suggests that the industry has a hard time wrapping its heads around how to really reach consumers.
If all of this sounds a little too far out for you to stomach, consider this: The Boomers begin turning 65 this January. In 10 years, the Millennials – a crowd most people in this industry simply do not understand whatsoever—will begin turning 40. In the same frame of time, Boomers will shift from the 65-74 bracket and into the 75+ bracket, when they will be far less likely to buy any kind of product this industry has to offer, of only because they’ll be living on fixed means. (This is all assuming, of course, that the Boomers’ collective advance toward retirement doesn’t fundamentally alter the landscape of life and health insurance somehow.) The bottom line is that at the same time, the Boomers will be exiting the market while the Millennials will be entering it, and at present, the industry is not even remotely geared up for that level of transition. It’s got a decade. It needs to start rolling on this yesterday.