A ‘nudge’ for the better in claims journeys

Companies tend to assume that customers, employees, and suppliers always behave rationally.

Irrational decisions, though ubiquitous, often catch organizations by surprise and create problems of all kinds, including unhappy moments for the customers. But researchers now know that many such choices follow predictable patterns. Insurers can benefit from these findings by learning to create “nudges”—subtle interventions that guide choices without restricting them—and use them for the benefit of their customers.

Behavioral economists combine elements of economics and psychology to understand the many “irrational” factors beyond logical reasoning that also influence buying behavior: habits, emotions, willpower, the framing of alternatives, and the ability and need to trust someone.

Two familiar examples of systematic irrationality are procrastination, i.e., postponing action on an important matter, often until it is too late, and excessive optimism, such as the widespread tendency to overestimate one’s own skills, knowledge, and chances of success.

With a deeper understanding of how these factors drive behavior, companies can create targeted interventions that “nudge” consumers to make better (safer, easier, more economical) choices—without restricting their freedom to decide against the nudge. Research shows, for instance, that hotel guests are 30 percent more willing to reuse their towels, as they would at home, when they are given a social cue that tells them how other people act in the same situation, e.g., “Most other guests in this room” choose to reuse their towels.1 Other examples of nudges include defining default choices and making processes easier to start and finish. Of course, the nudges must be used to create win–win situations for insurers and their customers—situations that the companies would be proud to read about in the press.

How a global insurer used nudges in customer interactions to increase effectiveness

In insurance, nudges can guide various customer behaviors such as choosing affiliated repair shops, using direct channels in service interactions, and preventing fraud. One global insurance company put nudges to the test in its assistance business to introduce customers to the partner repair network in a Western European country. Over 20 nudges were designed and tested on a large scale—in over 7,500 cases of breakdown assistance. The nudges selected for use improved upon what the insurer was already doing without radically changing the way the company worked.

The CHOICES framework of behavioral drivers created by McKinsey's Behavioral Insight Lab helps determine relevant interventions.

For example, the insurer built on one of behavioral economics’ most powerful insights: “Losses loom larger than gains.”2 Capitalizing on this, the insurer’s service representatives described the partner repair shops as the natural, default choice, framing the benefits as something that would be lost if the customer went elsewhere—a subtle shift away from merely listing the advantages of choosing a partner repair shop.

Another nudge built on the insight that people tilt in favor of the salient attributes of options that are personally relevant in the specific context, the moment of choice. Since assistance policies do not cover the cost of repairing a vehicle breakdown, customers typically focus mainly on quality and pricing. To nudge customers to attach more value to quality in such cases, the insurer’s customer service representatives explicitly told them about the quality of the partner repair shops, including better outcomes and longer-lasting repairs. This led more customers to go to a partner repair shop—even among customers with a breakdown close to home and thus near their own familiar repair shop.

Another small but effective nudge: at the start of the conversation, the assistance specialist expressed empathy (“I am sorry that your car broke down; it must be terribly inconvenient for you”). The more personal connection that this established between customer and specialist also correlated with a higher share of offers accepted and vehicles arriving in the partner network.

Significant positive impact for company and customers

As a result of the nudges, the volume of cars received by the insurer’s partner repair shops increased by up to nine percentage points. Customers who took part in the pilot expressed 13 percent higher satisfaction.

Satisfied with the results of the pilot project, the global insurance company is now looking at applying nudges to other business segments and regions in its roadside assistance business. Its aim is not only to increase efficiency and effectiveness, but also to continue to strengthen customer satisfaction and employee motivation.

Beyond claims, nudges have attractive potential in other areas of the customer journey, such as agent sales and direct channels. Insurers can also use nudges to enrich product design thinking and to influence the behavior of suppliers and employees. Behavioral insights often reveal areas where small changes can yield a big all-around improvement. Along with classic incentives and educational boosts, nudges thus offer a way to strengthen the insurance industry’s repertoire of actions to create superior value for both companies and customers.

About the author(s)

Pia Brüggemann is an associate partner in McKinsey’s Düsseldorf office, where Johannes-Tobias Lorenz is a senior partner; Anna Güntner is a senior associate in the Berlin office; and Björn Münstermann is a partner in the Munich office.
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