The rise of the sharing economy (e.g. Uber, Airbnb) and the Internet of Things, the decline of traditional distribution channels and the promise of driverless cars are only a few examples of the disruptions ahead.
(Source: 1,322 CEO interviews for our 18th Annual Global CEO Survey)
But scientific and technological advances aren’t just fuelling the disruption—they’re also fuelling our understanding of customer behaviour, thanks to advancements in data analytics and behavioural economics. We believe that visionary leaders who recognize the significant opportunity to enhance their understanding of their customers will not only weather the disruption but will turn it into an enduring competitive advantage.
What is behavioural economics? A traditional approach to understanding customer behaviour relies on models that consider humans to be always rational and self-interested. Behavioural economics, on the other hand, uses psychological findings to explain when customer behaviour deviates from traditional models and how customers can be corrected— or ‘nudged’—in ways that are beneficial for both customers and insurers.
For example, the way a question is framed can fundamentally change how we answer it. We overvalue free stuff. We overestimate the value of immediate gains at the expense of larger future rewards. We struggle with self-control. We’re paralyzed in the face of complexity and choice overload. We’re irrationally risk-averse. We overvalue losses to comparable gains. We can’t fully grasp the concept of money, and the list continues.
These deviations—called ‘cognitive biases’—are common throughout the insurance life cycle and they can be understood and corrected through series of nudges that are simple, low-cost, efficient and largely non-intrusive. From accelerating injured workers’ returns to work to decreasing churn rate, we’ve helped our clients understand and mitigate these biases and enjoy significant savings for themselves and their customers—a truly win-win strategy.
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