Insurance products, savings and investments are crucial elements of financial health that evolve throughout our lifetime. But getting consumers to think long-term is not easy.
2. GET FINANCE SMART
Thinking Long Term
A key role for financial services providers is encouraging long-term financial health –
helping customers to be financially secure for the duration of their lives. Insurance
products, savings and investments are crucial elements of financial health that evolve
throughout our lifetime. But getting consumers to think long-term is not easy, especially
in today’s uncertain context. If we don’t know what will happen tomorrow, it can be very
difficult to commit financially to something that won’t pay out for 30 years (if at all, in the
case of life or critical illness insurance).
Insurance is the only product designed to protect us from the uncertainty that surrounds
us; yet consumers do not seem to turn to insurance when the context grows in
unpredictability. Wharton professors Robert Meyer and Howard Kunreuther, authors of
the Ostrich Paradox explain that this is a costly mistake, for individuals and businesses
alike:
“Rather than seeing decreases in damage and fatalities due
to the aid of science, we’ve instead seen the worldwide
economic cost and impact on people’s lives from hazards
increase exponentially through the early twenty-first century,
with five of the ten costliest disasters in history with respect
to property occurring since 2005.”
In the case of pensions and investments, consumers know that they are increasingly likely
to live longer; but the impetus to save for a pension is low when faced with daily expenses
and more appealing ways to spend money with an immediate reward. Around the world,
we are not prepared for our future reality - only 13% of workers globally have a written
retirement plan; 44% say they have a plan, but that it is not written down. Just 32% of
workers have a backup plan if they are unable to continue working before their planned
retirement age.1
Products with a long life-span are a huge opportunity for financial services, not only in
terms of product sales but also in terms of developing meaningful, long-term customer
relationships. So how can financial service brands help customers to build a long-term
mindset?
1
The Aegon Retirement Readiness Survey 2018; 4,400 workers and 1,600 retired people surveyed across 15 countries
3. GET FINANCE SMART
Thinking Long Term
PROMPTING AWARENESS WITHOUT PROMPTING NEGATIVITY
While it is important to prompt customers to engage in long-term financial planning,
financial service providers have to be cautious with how they approach the topic.
Especially in the case of insurance, horror stories of insurance going wrong or not paying
out work against the industry. Negative perceptions are particularly damaging to long-
term financial products, as due to their intangible nature, trust is crucial. Insurance
customers need to know that their insurer will come through for them if the worst
happens. Investment customers need to believe that their provider is acting in their best
interests, and that their returns will be a significant improvement on their investment.
Ellevest, the investment fintech aimed at women, has done an amazing job of building
awareness of the investment gap between men and women. Facts such as women living
longer and with salaries that tend to peak sooner mean that it is more important for
women to invest than men. Yet this is the opposite of what is happening. Ellevest
prompted a natural-feeling conversation through channels like PR using celebrity
investors such as Serena Williams. By raising awareness of the facts in an empowering
way, as well as providing solutions, Ellevest has grown at speed. Just two years after
launch, Ellevest supports women in all 50 US states to save for their life goals – the most
common aim being to build wealth, followed by the long-term goal of retirement2
.
And it is not just consumer-facing insurance products that have to prompt awareness of
risks that are not immediately obvious. UK insurer Hiscox wanted to demonstrate the new
realities small business face as we as a society move further online, waking them up to
their insurance needs without scaring them. Digital risks are growing, but many small
businesses think they are too small to be targeted. Hiscox and AMV BBDO created a
series of executions to position the brand as a leader in the growing cyber risk
marketplace. The execution included a pulsing red light triggered by cyber-attacks on
digital posters; the lights gradually built over 24 hours as attacks occur, before they reset.
Initial trials suggested the number of attempted attacks (and pulsing dots) each day
would average 23,000; but the maximum number of attacks detected was 61,805 in one
24-hour period3
. The campaign raised awareness about the risk that will only grow going
forward and is currently hugely underestimated.
2
https://www.thedrum.com/creative-works/project/amv-bbdo-hiscox-cyberlive
3
Ellevest https://www.ellevest.com/magazine/news/ellevest-raised-33-million-annotated-press-release
4. GET FINANCE SMART
Thinking Long Term
PROMPTING BEHAVIOUR CHANGE; FROM SMALL TO BIG
People find it fairly easy to think short-term; behavioural economists describe a human
tendency towards “instant gratification and over-optimism”4
. This inclination can often
lead to “poor decisions and easy fixes”5
; for instance, popping a pill to stay healthy, rather
than investing in a long-term plan - vitamins and dietary supplements experienced a 9%
global growth annually between 2012-20176
. Financial services have to compete with their
customers’ short-term behaviours to long-term problems in order for their product to
even be considered.
But can financial services use these short-term mindsets to prompt a long-term change?
In the savings and investment category, behavioural economics has been applied so that
investors can build their wealth with the smallest loss to their daily lives, with products
such as Lloyds Bank in the UK’s long-standing Save the Change, or Money Box (an
investments fintech which partners with challenger bank Monzo), both of whom round up
the cost of your everyday purchases and invest the change. The everyday impact is barely
noticed, but it demonstrates that small can build to big. These initiatives only require buy-
in from the user – from there, the algorithm does the work.
In the insurance industry, Vitality has demonstrated that small prompts can be used to
change behaviour – applying the same principle that small changes can build to a big
difference. Vitality uses education, prompts and benefits to help its users to live more
healthily: offering tracking to empower them to take control of their fitness and reducing
the cost of health-promoting behaviours, such as gym membership. The program means
that the healthier you get, the more additional benefits you get, such as holiday discounts.
This is good for customers and good for insurers - lifestyle-related diseases account for
60% of deaths globally, but Vitality members generate up to 30% lower hospitalization
costs and depending on market, live from 13 to 21 years longer than the rest of the insured
population, and up to 41 years longer than comparable uninsured populations7
.
This empowering approach has worked for insurers around the world, with rights to the
program having been bought by insurers in 15 markets, and over 5.5 million people
covered8
.
4
https://hbr.org/2017/06/can-insurance-companies-incentivize-their-customers-to-be-healthier
5
https://hbr.org/2017/06/can-insurance-companies-incentivize-their-customers-to-be-healthier
6
Euromonitor International’s Lifestyles Survey 2017
7
https://hbr.org/2017/06/can-insurance-companies-incentivize-their-customers-to-be-healthier
8
https://hbr.org/2017/06/can-insurance-companies-incentivize-their-customers-to-be-healthier
