Life Insurance
Risk Management
Using Behavioural Science to Redesign the Life Insurance Application Journey
Industry topics
Upcoming events
Claim your CPD points
We used behavioural science to design better life insurance application forms, improving disclosure, and tested them out in a large study. Improved designs saw benefits such as a doubling in disclosure of electronic cigarette use and a nearly 50% increase in disclosure of mental health conditions.
Better disclosure in applications helps insurers to avoid declining death claims – the Australian Prudential Regulation Authority reports that in the last five years over 300 death claims have been declined for unintentional non-disclosure or misrepresentation[1].
Non-disclosure or misrepresentation is any form of materially incorrect or incomplete information provided on an insurance application. According to APRA’s 2024 Life Insurance Claims and Disputes Statistics [2], 20 – 36% of declined death cover claims for individual policies are due to non-disclosure or misrepresentation (unintentional or fraudulent).
It is in the best interest of insurers and customers to avoid misrepresentation at the application stage, ensuring a higher certainty of claim settlement. While some misrepresentation is due to intentional fraud, other applicants may struggle to complete an insurance application correctly and honestly because of medical jargon, confusing forms, lack of time, or their own nervousness about being honest.
Insights from behavioural science – the study of human decision-making – can reduce non-disclosure on application forms. Behavioural science can improve the applicant’s experience, promote engagement, reduce drop-out rates and increase the quality of disclosure.
To test this, our team of behavioural scientists from SCOR conducted an online experiment [3] in partnership with the Society of Actuaries in the US, published in 2024, to explore the effect of behavioural science techniques on disclosure.
The 4,200 study participants were chosen to be representative of the US market population based on age, gender, and education level. They were randomly assigned to one of five groups.
The Control Group received a sample traditional life insurance application form. Participants in the next two groups were presented with either Questionnaire A or B, which each incorporated different behavioural science techniques. Participants in the last two groups received Questionnaire B with an Honesty Pledge – a short statement asking the applicant to sign, promising that their answers were true and complete – at the beginning or the end of it.
We chose the application questions to represent the most important areas from an underwriting perspective. These included questions on mental health and medical conditions.
We measured and compared the disclosures from each of the five groups. Given the random assignment of participants to each group, any significant difference in disclosures can be assumed to be because of the behavioural science redesign.
According to the Australian Bureau of Statistics’s 2020–2022 National Study of Mental Health and Wellbeing [4], around 43% of Australians have experienced a mental health condition in their lifetime. However, mental health issues are often underdisclosed due to the personal nature of this question and the potential for applicants to feel uncomfortable being honest.
This problem is amplified by the common practice of asking about multiple conditions in the same question, with one Yes/No answer required for all of them. This format can be seen in the Control version of the mental health question used in the study.
Figure 1: Control Mental Health Question
Certain mental health conditions are more severe and more highly stigmatised than others.
Someone who has anxiety or depression may hesitate to be included in the same category as those with bipolar disorder or schizophrenia. They may answer “No” in order to avoid answering “Yes” to the conditions that they do not have.
To overcome this tendency, Questionnaire A separated the conditions into individual checkboxes, so that participants only had to select the conditions that applied to them.
Figure 2: Questionnaire A Mental Health Question
This had a significant impact on disclosure rates. 36% of participants in the Control Group disclosed a mental health condition, compared to 52% for participants who saw Questionnaire A. We also observed similar increases in disclosure when this technique was applied to questions about tobacco use and substance use support.
On most traditional insurance application forms, medical conditions are grouped into lists by body system, and these lists are presented one after the other on the same page, with a Yes/No response required for each. This format can become overwhelming for applicants, leading to skimming and reflexively checking “No” for each.
To counteract this tendency, Questionnaire B used a confirmation question. After completing the same long lists of medical conditions as in the Control form, participants who had not disclosed diabetes, heart disease, and/or cancer were asked to confirm that they did not have the conditions they hadn’t disclosed.
Figure 3: Questionnaire B Medical Conditions Confirmation Question
The impact of this redesign can be seen by comparing the number of participants who disclosed a certain condition the first time they were asked about it to the number who disclosed only after being asked a second time.
For each condition, the confirmation question increased disclosure by between 50% and 120% – a significant number of participants disclosed a condition after the confirmation question that they had failed to disclose in the first set of medical conditions questions.
These results indicate that implementing some form of confirmation question for important medical conditions could be an effective way to reduce misrepresentation on these questions.
The results, as well as the other findings of the study, show the potential of behavioural science techniques to improve question design and thereby reduce misrepresentation.
These features encourage us, as a profession and in the domains where we work, to be continually challenging the control and management of risk selection, using alternative methods to ensure the right outcomes.
These should benefit the experience of both the portfolios we manage and the customers who buy our products. To learn more about the full results of the experiment, please visit: https://www.soa.org/resources/research-reports/2024/redesign-life-ins-underwriting/
