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Dec 2018

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Insuring happiness

Source: Asia Insurance Review | Dec 2018

Concepts such as happiness and pleasure and how they are seen through the lens of behavioural economics are emerging as increasingly important for life insurers looking for ways to innovate their products and services. RGA Global Reinsurance – Escritório de Representação no Brasil (RGA Brazil) CEO Ronald Poon-Affat provides his view.
 
 
“Success is getting what you want. Happiness is wanting what you get.” – Dale Carnegie.
 
Discourses on happiness and how to achieve it are currently having quite a moment. But it’s not the first time this concept has bubbled into prominence. Centuries ago, Aristotle defined happiness as a central purpose in human life, stating “Happiness is the meaning and the purpose of life, the whole aim and end of human existence.” In 1776, the Declaration of Independence of the US enshrined “Life, liberty and the pursuit of happiness” as “unalienable rights” – that is, rights that cannot be taken away or transferred – that the government was created to protect.
 
More recently, the book The Art of Happiness – 10th Anniversary Edition, co-authored by the Dalai Lama and Howard Cutler went to substantial lengths to emphasise the difference between happiness and pleasure. The difference is indicated thusly: “Pleasure is externally motivated and fleeting, while happiness relates to the mind and the heart, it is internally generated and constant.”
 
Improved marketing
For insurers, understanding the difference between the two concepts can be important, as the norm of marketing to pleasure can many times undercut a client’s ultimate happiness. A car, for example, is sold as an instrument of both pleasure and happiness for consumers. However, buying an expensive car that dominates one’s life because of costly upkeep and a high risk of being stolen can bring transitory pleasure, but ultimately, not happiness. 
 
By the same token, a successful pursuit of happiness may not be pleasurable, but the rewards can be greater. For example, learning a foreign language and culture due to a work transfer may not be especially pleasurable, especially if a talent for languages is lacking, but the end result – the ability to communicate in the local language – will contribute greatly to happiness in a new locale. 
 
Engaging in long-distance running is another activity that initially may not provide pleasure, but most competitive runners (including myself) will say that the discipline of preparing for and participating in races ultimately provides a unique joy, composed of both happiness and pleasure. Fitness, energy, and the satisfaction of setting and reaching goals (not to mention the endorphins) all contribute to the pleasure and happiness I derive from running. 
Through an actuarial lens
 
How do happiness and pleasure apply to the development and sale of protection, accumulation, and divestment (annuity) products? Let’s consider: The principal objective of buying a life or living benefit insurance product is achieving financial protection from the repercussions of accidents, illness or death. Viewed simply, having insurance can provide peace of mind, a contributing factor to happiness. Hence I would argue that insurance is a happiness-oriented product, and as such, insurers would do well to adopt marketing techniques that can align with outcomes that engender happiness. 
 
However, life insurance is not a product either designed or purchased for either pleasure or happiness. Experts at selling activities and objects of pleasure and aspirational luxury have proved unsuccessful at applying these concepts to life insurance. Still, life insurance advertisements, especially those aimed at high-net-worth customers, tend to show clients in aspirationally happy settings, such as cuddling grandchildren, gazing at sunsets from tropical beaches, or sailing the Caribbean or Mediterranean. 
 
Life insurance is not purchased for pleasure or happiness either, but having it can give a measure of contentment and serenity, both of which are states that can frequently lead to happiness. How can we deliver this message successfully? Many an insurer is investigating the principles of behavioural economics to determine if applying them can benefit sales efforts.
 
Leveraging psychology
Behavioural economics is the study of psychology as it relates to economic decision-making processes of individuals and institutions. It focuses, in part, on clarifying and understanding some of the fundamentally irrational processes humans use in decision-making in relation to economic activity. Fundamentally, it seeks to determine how to adapt economic frameworks to how people really do think and make decisions, rather than looking for ways to design how they ‘should’ do so. 
 
It has long been known that the context in which information about products is presented to consumers can directly affect their purchase choices. Much has been discussed already about how this aspect of behavioural economics can assist underwriters and sellers of insurance. Incorporating aspects of this way of thinking into life insurance is still in its infancy, so as our understanding grows, there may be substantial potential for innovation and creativity in the design, underwriting and selling of our products.
 
For me, as an actuary, the question is how best some of the tenets of behavioural economics and psychology can be integrated with the rational nature of actuarial science in order to optimise our products and our efforts to sell them. 
 
Some ideas 
  • Product nomenclature. Descriptions such as dread disease, accidental death and dismemberment, terminal illness might profit from a change to more welcoming appellations. Feelings of protection and security and the removal of negatives such as anxiety are ingredients of happiness, and naming products in ways that reinforce the solutions rather than the problems might engender a greater likelihood of consideration for our products. 
  • Sales environments. Simple actions can transform a mundane transaction and make a client feel special and, yes, happy. Consider where an agent pitches a sale to a customer: I’ve seen too many instances of agents meeting potential clients in noisy, crowded coffee shops. Bancassurers have long used the comfortable, attractive lounge spaces in their branches to discuss and successfully sell clients insurance products to meet their needs. Insurers could benefit from providing such spaces for their sales forces as well. 
  • Generosity. Recent research into the psychology of generosity has found that acts of charitable giving can improve blood pressure and life expectancy. Insurers might consider utilising an idea currently being used by one successful InsurTech firm’s book: Allowing clients to nominate a charity to which donations can be made should its underwriting profits be favourable. Customers might then have an additional reason to feel good about having made an insurance purchase. 
  • Focus on service. The insurance industry’s norm of ‘sell it and forget it’ has to evolve. Clients who feel cared for are happier in their relationships with their insurance providers and advisers. When product and service upgrades are continuously delivered, clients may be more open to sales discussions. 
  • Know your client. This element continues to increase in importance, and requires far more today than just collecting personal medical histories, ascertaining that a sum insured is compatible with stated income, or making sure the named dependent(s) have a legitimate insurable interest. It also means taking the time to discover what might make a prospective client happy. This can only benefit our industry in the long run.
 
Actuarial role 
For humans, the pursuit of pleasure is generally a simple activity, whereas finding happiness takes effort and is generally more elusive. For actuaries, taking a role in the design (or redesign) of coverages that can encourage clients to defer present pleasures for future financial security can also provide a friendly nudge toward the Aristotelian ideal of happiness. A 
 
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