The study of economics presumes at its core that consumers will always make the most rational solutions with their finances, with the goal of maximizing their personal get. In the aggregate, this may hold true, but this idea will probably break down on a smaller scope. Consumers don’t always have in mind the best choice for their financial situation, or even how to find the information to make that call. Even financial professionals might act on inaccurate files or be led astray using some other way. The study of attitudinal economics was created, as Craig Lambert in the Harvard Magazine written, to reconcile the theory in the rational actor with the truth of human psychology.
The approaches behavioral economics principles make a difference the sale of life cover are numerous, and the subject of a recent study by?Life Insurance and Market Research Association. One of several study’s many findings usually are surprising conclusions surrounding just how consumers make important options for their financial future, and in what way a well-informed financial professional may be able to guide them in the suitable direction.
“Most overestimate the actual valuation on life insurance by a large margin.”
Life insurance sales lagging
According to the Insurance protection Information Institute, 57 percent of all Americans own?life insurance, a rate that is at its lowest in 50 years. Fifty-four % of Americans say they are unlikely to get a plan in the next year. Most of consumers who already attend a plan are hesitant to get more life insurance because they imagine it’s too expensive. Yet 80 % overestimate the cost of life insurance, to the track of 119 percent more than truth among members of Generation Z.
Clearly, the life insurance industry gets the cards stacked against them, and a great deal of this is due to preconditioned notions about their products. LIMRA’ohydrates Jennifer Douglas noted that while many in the industry recognize these obstacles, very little research has been devoted to basically understanding the causes behind most of these trends and how they might be corrected.
“Perhaps it’s something clients aren’t telling us?” Douglas submitted in the study. “Given the function of the subconscious in decision-making, we cannot always accurately describe the reason we make the decisions that we do. As humans, we’re often unaware of what’s actually motivating us.”
Uncovering hidden biases
Douglas, coupled with others at LIMRA, set out to demonstrate what those hidden pushes were. To do this, they structured experiments to study subjects’ responses to be able to insurance-related questions and prompts. They also measured the reaction times of things when asked questions about obtaining life insurance. From this research, LIMRA fashioned eight specific messages directed at starting a sales talk and tested their results.
In the end, researchers found the top method of convincing consumers that life assurance was a wise investment was initially presenting it as a cultural norm. When subjects were told that most people “like them” owned or operated life insurance, especially if they had little ones, they were much more likely to respond positively to questions about purchasing insurance coverage. This message was even effective with demographics that were rather unconvinced by other arguments. Shockingly, when asked to evaluate the convincing statements themselves, most things assumed this would be the least successful.
Understanding the implications of this studies are key for financial experts who want to maximize the effectiveness of their total client communications. It’s not too consumers aren’t smart – quite the contrary. Instead, advisors must know that every financial decision must be put in the proper perspective, allowing clients to see the best journey for their plans and goals.