How Behavioural Economics Can Reduce Insurance Fraud

Copyright © 2013 PrimeDecision
Honesty and Insurance Claims
Can behavioural economics help to solve
insurance industry fraud?

Claim exaggeration is prevalent
 A recent study by AXA found that the
average insurance claim value in the
UK is increased by around 17%
 Experian’s Fraud Report 2012 reported
that insurance fraud is estimated to
now cost £2.1 billion per year
http://www.experian.co.uk/assets/identity-and-fraud/fraud-report-2012.pdf

Why exaggerate in insurance claims?
Claims forms can be
difficult and confusing
Value of claimed items
can be ambiguous
Expectation that the
insurance company will
not pay out fully
A sense of entitlement:
getting a return from
the insurance purchase
The extra amount is
tiny in relation to
insurance profits
Small or no likelihood
of being caught out
Ease and lack of
implications
Exaggeration is minor
compared to the potential
opportunity for fraud
There are a range of justifications given, including:

An alternative perspective
Which contextual factors promote honesty?

Behaving honestly = a balancing act
Maintaining a
positive view
of myself
Cheating for my
own benefit
According to psychology and behavioural economics

Examples of factors which affect honesty
Depletion
People who have just
completed a task
which requires lots of
mental effort are
more likely to cheat.

Format
An employee might
comfortably justify taking
stationery from the office, but
wouldn’t steal cash of the
equivalent value.

Moral
reminders
Even atheists are less likely to
cheat if they are asked to recall
the ten commandments before
taking a test.

Proximity
In golf we are far more likely to
cheat by tapping the ball with our
club than by kicking the ball or
picking it up with our hands.

A Proof Case
Using principles from Behavioural Economics to reduce
dishonesty in online transactions.

Our experiment
 Instead of focusing on attitudes, we wanted to test our ability
to influence actual behaviour, so our team worked with market
research firm Consumer Intelligence to design an experiment.
 Online survey panellists were given an incentive to cheat in
order to increase the size of their Easter Bonus.
 Participants knew that cheating couldn’t be caught, so had
every opportunity to exaggerate.
 We wanted to find out whether the behavioural economics
principle of a pledge/moral reminder would combat dishonesty.

Experiment format
C.
Control
No opportunity
to cheat
Opportunity
Cheating is
possible
B.A.
Pledge
Agree to act
honestly/morally
Exactly the same copy was used for all, with a single change per condition

Pick a number between 1 and 100.
Click here to reveal the bonus payment you earned.
1.
4.
We chose the number 80. The closer your number was
to 80, the higher your spring bonus will be.3.
2. Tell us the number you picked.
A.Control
No opportunity
to cheat
A: Control

B: Opportunity
Pick a number between 1 and 100.
We chose the number 80. The closer your number was
to 80, the higher your spring bonus will be.
1.
2.
3.
4.
Opportunity
Cheating is
possible
B.
Tell us the number you picked.

C: Pledge
Pick a number between 1 and 100.1.
We chose the number 80. The closer your number was to 80, the
higher your spring bonus will be.3.
4.
C.
2.
Pledge
Agree to act
honestly/morally
I recognise that I have moral obligation to complete this task honestly.
Tell us the number you picked.

The Results

The key finding:
 The honestly pledge reduced the propensity to
cheat significantly.

Comparison: percentage of people who
claimed the maximum bonus
0%
1%
2%
3%
4%
5%
6%
7%
8%
Control Opportunity Honesty Pledge

Comparison: percentage of people who
claimed a high bonus
0%
5%
10%
15%
20%
25%
30%
35%
40%
Control Opportunity Honesty Pledge
High
Very high

Additional: insurance company condition
 We told a different set of participants that the Easter Bonus
was being funded by an insurance company.
 Cheating still reduced substantially, though slightly less than
in the neutral honesty condition.
Does knowing an insurance company is picking up the tab change anything?
0%
1%
2%
3%
4%
5%
Insurance Funded Honesty Pledge + Insurance Funded
Percentage claiming a maximum bonus

In conclusion

Context is powerful
 What would an insurance process look like that was
designed to promote honesty?
The claims process
Marketing touch-points
Customer communications
There is a tremendous opportunity to apply psychological insights to reduce fraud

Thanks for your time
Questions?
Natalie Horne, Strategy Director
natalie.horne@prime-decision.com
primedecision.com | @primedecision
 PrimeDecision is an insight and strategy company which applies behavioural
economics to marketing, customer experience and behaviour change.
 Brands and organisations task us with innovation and optimisation.

How Behavioural Economics Can Reduce Insurance Fraud

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