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Insight: Nudge theory and digitising insurance


Punishing companies who don’t implement change won’t transform this market. It’s time to nudge.

Handling over £60 billion in premiums annually, the global specialty re/insurance market is large, complex, and seems to be on the brink of considerable technological change.

A dynamic which has generated no small amount of optimism and debate amongst industry professionals.  But a significant portion of this market (most notably based in London) is still without an “end to end solution”, and while the ecosystem approach discussed in Lloyd’s Blueprint One seeks to address this in many ways, further detail is required. 

While initiatives like Blueprint One are extremely positive and will ultimately support both brokers and underwriters, the journey to reach a true end-to-end solution will by its nature require strong, if not unanimous, buy-in from the market. Indeed, the London Market Association rightly believes that to achieve a seamless digital marketplace “Every system will need to interface with all the others”. 

This is because marketplaces are difficult to change - especially those as diversified and complex as a 400 year old international insurance marketplace rife with manual processes and layers of legacy systems developed over time. 

The difficulties are then compounded by the fact that most participants’ legacy systems do not or cannot “talk” to other systems easily, nor can they easily or quickly or cheaply be adapted to do so. 

Any such developments take time, cost money and require a long term approach that many businesses struggle to find value in.The 18 major classes at Lloyd’s, for example, are segmented, and in many respects do not overlap easily in terms of processes, conventions, and policy criteria.  

What commonality does Space insurance have with Cargo? What does Medical Malpractice have in common with Political Risk insurance? Clearly, having a platform that adopts a ‘one size fits all’ approach is unlikely to serve the global specialty insurance marketplace’s  broad and deep expertise and specialist segments.  

So far something of a carrot and stick approach seems to have been taken to try to encourage adoption of market-wide initiatives like electronic placement. But is it punishing those who don’t implement change quickly enough the right way to incentivise digital transformation?  

Capital charges can be applied to syndicates which don’t meet electronic placement quotas, and there are whispers of the same being applied in 2020 for those that don’t quote for a risk electronically.

But there are so many different parts of the insurance life cycle that don’t have adequate solutions yet, and it seems odd to punish brokers or carriers for not using something that doesn’t exist, or is not tailored to their class of business! Perhaps the reason why there has been so much grumbling about existing systems, is that users do not feel it is properly suited to their work.  

So how does one elicit effective change in a market in which the wheels of change have historically turned slowly and cautiously? Everyone sees the benefit of digitisation to some degree, but how to get people to ‘choose’ change over the status quo? 

Richard Thaler (father of behavioural economics, 2017 Nobel Prize winner), suggests that the investment in *anything* where the costs are borne now, but the benefits borne later (Think of:  “People! Digitise your paper-based insurance processes, tomorrow will be better we promise!”), result in most people doing extremely little.  He says that rare, difficult choices (read : digitise the commercial insurance marketplace for the first time in… ever),  are good candidates for “nudges”. 

So what is this nudge, and why does it work ? Simply put, a nudge is a  subtle policy shift that encourages people to make decisions that are in their broad self-interest.  It’s not about penalising people financially if they don’t act in a certain way, but making it easier for them to make a certain decision or act a certain/different way. 

Recent successful examples are as diverse as increasing pension contributionsorgan donations, even bathroom cleanliness (!).
Could it work in insurance? We think so. Dialogue recently launched a trial application for Credit and Political Risk classes to get both brokers and underwriters onto a digital platform.

Our constraint was that we could not simply penalise users if they didn’t join - the idea had to come from them - the application had to serve the broad self-interest of the users. It worked!

Our simple, free application helped take away a time consuming menial task from both brokers and underwriters - and is on track to save an estimated 400,000 emails a year, with good feedback from all users! User penetration now over 60%, after just 10 days live, and some underwriter or broker users are so inspired by our work that they have even written to Lloyd’s requesting that our application is rolled out across the entire market… a  decent nudge by anyone’s standards.

This is our first step on a journey to help brokers and underwriters in specialist classes like Credit & Political Risk Insurance to be more efficient, more profitable and grow faster, one nudge at a time. Watch this space for more news.  

Feel fired up by the issues I’ve raised? Contact me to discuss:  ben.heaney@dxglobal.co.uk

Mar 30, 2020

15 Bishopsgate, London, EC2N 3AR

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