Using behavioral economics in underwriting

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:

1. The question is too complicated or requires doing a calculation.

2. We ask applicants to remember things from a long time ago.

3. We make it obvious what the “right” and “wrong” (read “expensive”) answer is.

4. We guide applicants toward particular answers by putting cues in the question, or in the response options.

5. 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.