Insurance is important for protection against life’s unexpected events, and an important component of financial resilience. While many acknowledge this, various factors including behavioural barriers may influence whether such an insurance is taken up or not. PIDM and The Behavioural Insights Team (BIT) collaborated to gain insights around the behaviours of urban millennials in Malaysia in respect of long-term insurance (life and health), and explores possible interventions to encourage its uptake. Our findings are presented in the form of a literature review on behavioural science research on insurance, as well as a report outlining results from a survey, framed field experiment and key recommendations.
Insurance plays an important role in society. It allows people to manage risks and protect their financial stability. However, purchasing insurance requires people to make predictions about unlikely (but highly significant) events. Without feedback on the choices made, people are susceptible to behavioural biases. Our study identified five biases that influence insurance decision behaviours: we are bad at assessing risk; we avoid decisions, particularly difficult ones; we take our cues from others; we are guided by key timepoints; and we value the present more than the future.
We asked participants to tell us about their existing insurance plans, in terms of what they had bought and excluding insurance that was purchased for them by their employer. We see that 42% of our sample did not have life insurance coverage, while 23% did not have health insurance.
A higher proportion of those in the lower income ranges (<RM2,500) reported that they surrendered and/or downgraded their insurance as a result of COVID-19’s impact. Even if not actioned, a large proportion of those without income (22%) did think about surrendering or downgrading. Conversely, a higher proportion of those earning over RM2,500 reported that they either purchased insurance and/or increased their level of existing coverage due to the influence of COVID-19.
Our findings show that increasing choice complexity leads to more respondents disengaging from the insurance decision, compared to our control group. In addition, those in the lower-income group (earning below RM2,500) were more likely to disengage.
For our experiment on social information, we presented three types of insurance offerings (A, B and C) which had broadly similar information in terms of coverage, premiums and co-payment levels. Insurance ‘A’ was given the highest ratings from customer reviews. Our results show that a higher proportion of respondents chose Insurance A. This suggests the influence of social approval or information provision on insurance choices.
We found that family and friends are key drivers for the decision to take up both Life and Health insurance, closely followed by personal life transitions. It is also important to note that hearing of others’ crisis experiences is more powerful than experiencing an actual crisis itself. This could have important policy implications in terms of how to communicate the need for insurance. Our findings showed that parents and professionals were primary influences when it comes to making insurance decisions.
We see that for most respondents, trust, affordability and coverage were important considerations in their choice of life insurance plans. These were also the top results for health insurance choices. Interestingly, younger respondents were more keen on additional services and the availability of transparent information, which ties in with the concerns of other younger respondents about lacking guidance towards plans.
In our survey, we observe that people with lower income have higher present bias and lower insurance uptake. This means that they may face both structural barriers, in funds, and behavioural barriers, in present bias, to getting insurance. We think this is sufficient cause to argue that policy needs to treat lower income persons fundamentally differently when thinking about insurance.
For those who do have more disposable income, we can take action to encourage insurance uptake. More to the point, we can find better ways to prompt action. Rather than trying to get everyone to get insurance all the time, we can think cleverly about the moments in life when people already are more likely to get insurance - to need insurance - and focus our energies on these life transitions.
Our findings show clearly that people struggle with decisions around insurance - whether it is their tendency to disengage in the experiment in the face of too many choices, or the high proportion of respondents who pointed to lack of guidance as an obstacle. Luckily, though, the solution is clear also - policy and regulation that promotes and ensures simplicity and transparency. That way we can make it easier for individuals to find a suitable insurance option for themselves.
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