Risk. It’s everywhere. Crossing the street. Start a business. Even decide to buy insurance. But here is the thing: not everyone sees the risk in the same way. Some people are applicants for thrills. Others? They won’t even be Jaywalk. And this is where the science of behavior comes into play.
Insurers now plunge deep into risk psychology. For what? To understand how we think, act and make decisions. This changes everything – how policies are assessed how they are marketed. Let’s decompose it.
What is risk tolerance anyway?
Risk tolerance is essentially the amount of uncertainty that you are ready to manage. Are you the type to jump to the elastic of a bridge? Or do you check the locks every night?
Insurers care. A lot. For what? Because your risk tolerance says a lot about the probability of submitting a complaint. For example:
- Car insurance: A cautious driver can stick to speed limits and avoid accidents. A risk lessee? They probably weave traffic at 90 mph.
- Health insurance: A person with low risk tolerance could obtain regular examinations. A high -risk individual? They could skip the doctor until it is an emergency.
- Home insurance: An opposite risk owner can install a security system. A risk tolerant at risk? They could let the rear door unlocked.
Insurers use this information to predict behavior. And this prediction? This has an impact on your prices.
How does that affect insurance rates?
Here is the agreement: insurance is a question of probability. The more likely you are to submit a complaint, the higher your premium. The science of behavior helps insurers understand this.
Take telematics, for example. Do you know these small devices that some car insurers offer? They follow your driving habits – speed, braking, even the time of day. If you are careful, you could get a discount. If you are reckless? Expect a higher bill.
Or look at health insurance. Some companies offer portable devices, such as fitness trackers. Walk 10,000 steps a day? You could earn a lower bonus. The science of behavior helps insurers to reward low -risk behavior and to invoice more for high -risk habits.
Marketing: Talking to your indoor risk lessee (or arguing)
The science of behavior is not only rates. This also changes how insurers market their products. They use psychology to create messages that resonate with different types of people.
- For customers opposed to risk: Ads can focus on safety and safety. Think: “Protect what matters most.”
- For risk tolerant at risk: Messaging could highlight freedom and flexibility. Like: “boldly live, we have a back.”
Even the way policies are structured can reflect this. For example, some insurers offer “pay-as-you-go” plans for people who do not want long-term commitments. Others bring together politicians for those who appreciate simplicity and stability.
A quick history lesson
The science of insurance behavior is not new. It becomes more and more sophisticated.
At first, the subscription was based on large categories – age, sex, location. But in the middle of the 20th century, psychologists began to study decision -making in uncertainty. Enter behavioral economy.
In the middle of the 20th century, researchers love Daniel Kahneman And Amos Tversky overturned the script on how we think about decision -making. Their revolutionary work in behavioral economics has revealed something surprising: humans are not always rational. We do not weigh the advantages and disadvantages such as calculators. Instead, we are counting on mental shortcuts – what they called “heuristic”. These shortcuts help us make decisions quickly, but they can also lead to predictable errors.
For example:
- Losses aversion: Kahneman and Tversky have found that people fear more than the losses they appreciate equivalent gains. Losing $ 100 is worse than the joy of finding $ 100. Insurers use this information to develop policies. “Protecting your family against financial losses” is more convincing than “winning peace of mind”.
- Excessive trusted bias: Many people underestimate their own risks. A driver might think: “I am an excellent driver, I will never crush myself”, even if he accelerates regularly. Insurers use tools like telematics to counter this bias with difficult data.
- Heuristic availability: People assess the risks according to what is most memorable, not what is most likely. For example, after a hurricane, owners can rush to buy insurance – even if they live in a low risk area. Insurers can use this behavior to timed marketing campaigns or adjust prices.
Their research has laid the foundations for understanding how emotions, prejudices and decisions to sharing the context. It was not only the theory – it was a roadmap for industries like insurance to better predict and influence behavior. Today, these principles are integrated into everything, from subscription algorithms to marketing strategies.
Insurers have taken note. Over time, they started to apply these ideas. First life insurance. Then in auto, healthy and beyond. Today, with AI and the megadonts, the behavioral sciences are more powerful than ever.
Real world examples
Do you want to prove that it works? Here are some examples:
- Instant of progressive: Follows driving habits to reward safe drivers. It is a classic example of using behavioral data to adjust rates.
- Oscar health: Offer rewards for healthy behaviors, such as walking or getting influenza shots. Behavioral nudges in action.
- Lemonade: Use behavioral science to reduce fraud. They ask customers to record a video explaining their complaint. It turns out that people are less likely to lie on the camera.
What is the next step?
The future of insurance is personal. The science of behavior will continue to push insurers to understand us better. Policies will become more personalized. The prices will be more “just”. And marketing? It will talk directly about who we are.
But there are challenges. Confidentiality concerns. Ethical questions. How many data is too much? When does personalization seem invasive? These are questions that insurers – and the company will have to answer.