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How Insurers Can Use Behavioral Economics Approaches to Make Improvements

By Heidi Alpren, Ruth Potter, and Joe Curtin

NewsDirect, April 2025

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There are frequently discussed methods to effectively apply behavioral economics (BE) principles to insurance practices—and how to put BE strategies into action. Implementing these important tools can help insurers in many ways, from developing effective question designs for insurance applications, to improving website design, marketing and more.

Here are some ways you can bring BE to the forefront with small changes that can make a big difference.

Improve Your Applications

Using BE approaches, companies can improve not only disclosure on their applications and Personal History Interview (PHI) scripts, but also overall application and PHI design.

There are many reasons companies delay making application changes—salesforce pressure, cost, resource constraints, IT challenges, and filing challenges. All of these are certainly understandable. But it’s best to plan an annual review of your applications and ask the simple question: How can they be improved?

To proceed with improvements, companies will first need data to identify where to look. Some data may include which questions are amended most frequently, and why? Which questions take the most time to complete and why? And then they should also ask themselves, is that okay? Or, do we need to take another look at this?

Another suggestion is that insurers should also review which questions have the lowest “yes” answer rates. Again, it’s important to find out why this is happening and determine if the response rates are acceptable or if changes are needed.

Evaluate What Should Change

Insurers should look at where their claims are, whether claims are overly concentrated in certain medical or nonmedical areas. They need to determine whether that is related to question design, or perhaps due to questions that are missing from an application.

Also, work in conjunction with the Claims Department to find out whether the company has lost any litigation on contestable claims due to the way a question—or questions—are designed. If the answer is yes, the next step is to figure out what changes are needed.

Review Design, Too

Implementing a BE-based design to improve disclosure can result in evidence of insurability questions taking more time to complete. That leads companies to decide if increased disclosure and better mortality or morbidity experience are worth some extra time on application or PHI completion.

When companies go the redesign route, they can offset much, if not all, of the extra completion time through redesign or elimination of other application sections.

Review Presentations and Website

Those familiar with the BE framework will most likely think about application and PHI script design, but that’s just a sliver of the full scope. For example, a review of media presentations can challenge historical practices and deeply ingrained biases about presentation content, offering dramatic improvement. BE approaches can also help with website design for client service functionality. This is fertile ground for improvement. Many companies overlook opportunities for client retention and engagement such as reviewing the variety of languages used—or not used—on their website.

There are many clients whose primary language is not English. Insurers with websites that offer a broader array of languages may find it easier to attract and retain clients.

Use Nudging

Another BE concept that is well-known is simplification related to nudging. Nudging is using positive reinforcement and indirect suggestions as ways to influence behavior and decision-making of individuals or groups. Simplification recognizes that complexity can be costly and potentially harmful.

Often, products and riders, forms, online instructions, application questions, and policy language are very complicated. Combining simplification with nudging can significantly improve outcomes for insurers across operational areas.

Checklist for Application Reviews

  • Review your current application data to help determine which questions may be in need of adjustment.
  • Connect with your claims team to see if there are medical or non-medical areas where claims are overly concentrated.
  • Learn about BE approaches. Keep an eye out for related articles on the subject; there are many great books available. Seek out those who have had experience working with BE approaches.

Statements of fact and opinions expressed herein are those of the individual authors and are not necessarily those of the Society of Actuaries, the newsletter editors, or the respective authors’ employers.

Heidi Alpren, is head of U.S. research center for Gen Re. Heidi can be contacted at halpren@genre.com.

Ruth Potter, is a sr. market research analyst for Gen Re. Ruth can be contacted at ruth.potter@genre.com.

Joe Curtin, is head of underwriting relationships for Gen Re. Joe can be contacted at joe.curtin@genre.com.