How might behavioral economics apply to the claims management process? Maria Sassian, research manager at the I.I.I., investigates:
A recent edition of Gen Re’s Claims Focus contains a fascinating article that explains some of the key principles of behavioral economics (BE) and demonstrates their application to claims management.
BE theory asserts that individuals make irrational decisions due to cognitive biases they are not aware of. These biases are so common that Dan Ariely coined the term ‘predictably irrational.’ BE has been a hot topic in insurance for some time and interest in it is not fading.
Clio Lawrence, the author of the article, studied a group of self-employed income protection insurance policyholders in the UK. Several BE principles were applied throughout the claims process. She concludes: “While our observations and investigations are ongoing, the anecdotal evidence and feedback has so far supported a link between the application of BE principles and claims outcomes. “