Behavioral science in insurance—nudges improve decision making

It’s a common problem: we know what’s good for us, but we don’t always do it. (How many people really use their gym membership?) This kind of counterintuitive behavior is often due to poor “choice architecture”—the context in which people make decisions. Choice architecture involves the medium and sequence in which information is presented, how our actions compare with those of our peers, and so forth. Poor choice architecture can foster unfavorable behaviors, such as procrastination and a preference for instant gratification over longer-term benefits.

Nudging, a behavioral science approach that uses “subtle interventions to help people make better decisions while respecting the freedom of choice,”1 can be used to redirect such behavior in two steps. First, target behaviors are identified. Second, a better choice architecture is created to make it easier for individuals to choose a better solution.2

Over the past decade, nudging has permeated both the public and private sectors. Prominent institutions, such as Morningstar, Walmart, and the UK and US governments, are known for successfully applying nudging techniques. A significant number of insurers have also begun to employ the tactic.3

Used successfully in the insurance industry, the benefits of nudging may include increased sales, reduced fraud, or improved customer and employee satisfaction. Many insurers use nudging selectively: some, for example, use it to optimize digital solutions. Others have conducted structured reviews of the biggest business opportunities for nudging and deployed a few discrete use cases. Still others have anchored nudging and behavioral science deeply in their organizational strategies by hiring experts and dedicated teams or by creating management positions devoted to behavioral science.

Getting started and achieving results—with minimal effort

A leading German multiline insurer recently deployed nudging to improve customer service in motor insurance claims. For several years, the insurer had offered a referral service using a network of qualified repair shops. But even though the service was less expensive and more convenient for customers than out-of-network repair shops, only a minority of claimants accepted the offer. The insurer determined poor choice architecture was at work.

Within just four weeks, the company worked with a group of their agents to devise prompts and discussion points to use in conversations with customers to better explain the offering, based on experience and scientific insight into nudging and common biases. Once the prompts and points were developed, a pilot comparing various approaches was set up.

The results of the pilot were highly encouraging. Just based on a change in the language used, more than 30 percent of callers accepted the company’s offer—topping the approximately 25 to 30 percent rate achieved by top performers, according to Finalta.4 Most interestingly, the acceptance rate of the customers’ liability counterparties,5 who are notoriously difficult to convince, increased from around 10 percent to around 30 percent. That is almost double the rate achieved by top performers.

The insurer proceeded to roll out nudging across its entire claims operation, which saw a claims ratio decrease of 2 percent for motor via a reduction of claims cost.

The next horizon: A close-up on four areas

Despite such proven examples of the value of nudging in insurance, a huge amount of untapped potential remains. Four areas show particular promise: product design, sales, claims, and ecosystem building.

Product design. Today, managers aspire to design new, simple, understandable insurance products to promote customer trust. Built-in nudges can help improve customer satisfaction and retention. For example, insurers can increase the penetration of flood insurance, which tends to be underutilized because of “projection bias” (the policyholder canceling a contract after a long period without claims). Simply by including a cool-off period in the product’s cancellation policy, they can allow customers who have impulsively canceled coverage to change their minds and keep their contracts. The potential to include nudging in the design of life and health insurance products is even higher than for property and casualty (P&C) policies, as these decisions are often even more driven by emotion.

Sales. Nudging customers is common in sales across various industries. Outbound-call centers often use carefully worded scripts to increase customers’ satisfaction with the interaction, confidence in the quality of the product, and overall trust in the provider to resolve issues quickly. Some companies have found that matching customers with company representatives who have similar demographic or psychological profiles promotes customer engagement. In our experience, industries that employ such nudging techniques have increased cross-selling by as much as 30 percent.

Claims. Nudging can increase customer acceptance of cash-settlement or repair recommendations. It can also help prevent fraudulent claims or engage customers in loss prevention. One possible nudge might be asking claimants to produce a short video statement detailing their loss. Such videos may prompt greater conscientiousness (and deter inflation of claims more effectively) than standard written-loss notification forms. Meanwhile, health insurers, in particular, have been exploring how to nudge healthy behaviors. Some techniques, such as suggesting a package of prevention measures (instead of promoting each measure separately), may be transferable to P&C lines.

Ecosystem building. Many insurance companies today are dipping their toes into the ecosystems pool, linking their insurance offerings to a much broader range of partners’ products and services.6 Nudging can be very useful in ecosystems, as participants can refer their customers to relevant partners. Particularly over digital channels, nudges can be easy to implement and personalize—which can make those referrals even more impactful. Such ecosystems have become crucial in Asia, for health insurance as well as for wider customer acquisition on digital platforms, with ecosystems built around smart homes, health and wellness, and so forth.

By making targeted changes in the choice architecture, nudging can have a great impact. Several insurance companies have already begun to integrate nudging techniques into various points along their value chain. The next horizon of nudging will see structured approaches to selecting good use cases. Companies that further acknowledge the full potential impact of nudging may even institutionalize this capability in dedicated units and ensure that behavioral science penetrates everything they do.7

The authors wish to thank Bernhard Kotanko and Erwann Michel-Kerjan for their contributions to this blog post.

1 Anna Güntner, Konstantin Lucks, and Julia Sperling-Magro, “Lessons from the front line of corporate nudging,” January 24, 2019,
2 See Erwann Michel-Kerjan and Paul Slovic, eds., The Irrational Economist: Making Decisions in a Dangerous World, New York, NY: PublicAffairs, 2010.
3 Pia Brüggemann, Anna Güntner, Johannes-Tobias Lorenz, and Björn Münstermann, “A ‘nudge’ for the better in assistance claims journeys,” July 5, 2017,
4 Finalta, a McKinsey-owned company, is the leading global expert on financial-services benchmarks.
5 The liability counterparties, in this case, would be other drivers involved in a collision, whose auto damage would be the responsibility of the insurer’s customer.
6 For more on ecosystems, see Tanguy Catlin, Ulrike Deetjen, Johannes-Tobias Lorenz, Jahnavi Nandan, and Shirish Sharma, “Ecosystems and platforms: How insurers can turn vision into reality,” March 12, 2020,
7 Anna Güntner, Konstantin Lucks, and Julia Sperling-Magro, “Lessons from the front line of corporate nudging,” January 24, 2019,

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