Three Risk Biases to overcome when addressing policyholders in hazard-prone areas

As consumers in risk-prone areas become increasingly inundated by information, they rely more heavily on mental shortcuts to make decisions about insurance policies. In many cases, these heuristics, also called biases, are an effective thinking tools when we need to come to a reasoned decision quickly. However, these shortcuts can lead policyholders down highly risky paths.

Understanding the biases that affect policyholder decision-making allows insurance providers to help consumers overcome flawed thinking to make decisions that will reduce their risk and ensure happier, healthier lives.

Availability Bias

The problem

Are you having trouble persuading policyholders of the need for insurance for low-probability, high-consequence events like 100 year floods? Availability bias probably plays a factor in the reluctance of homeowners in hazard-prone areas to invest in flood insurance. When we operate under an availability bias, we make the assumption that information we can access easily is more important than information that we don’t have instant access to. If the last major flood can’t be easily called to mind, the risk of flooding feels negligible to homeowners.

The solution

The availability bias favors more recent information, so keeping policyholders current on flood statistics will help overcome the availability bias. Statistics alone, however, are often not enough to sway a person who hasn’t experienced a flood themselves. Emotion plays a much greater role in decision-making than logic.

To trigger consumers’ mirror neurons, which allow them to share an experience with another person (and therefore feel the impact), use real life testimonies from local homeowners who did and did not have flood insurance when a major flood occured. Be sure to make the stories adequately gripping to drive home the negative consequences of being uninsured when a cataclysmic event does occur.

Threshold Bias

The problem

The very name 100-year flood leads homeowners in hazard-prone areas to a more lackadaisical approach to risk management. The misleading terminology gives consumers the impression that a destructive flood only happens once every 100-years when, in fact, the probability of a 100-year flood is the exact same every year. Every year, there’s a 1% chance that a 100-year flood will occur. That still seems like a low probability, and so flooding (and similarly low probability, high consequence events) is considered below the threshold level of concern.

The solution

One way to solve the threshold bias problem is to personalize data so that it’s more palpable to policyholders. For example, a house in a 100-year floodplain has a 26% chance of being flooded at least once over the course of a 30-year mortgage. When you pair that statistic with numbers related to the actual costs of that one flood, the threshold level of concern will rise.

Interestingly, there’s another threshold you can employ to compel reluctant policyholders. We are social creatures, and we’re more eager to adopt new practices when a certain threshold, or tipping point, of our neighbors and community members change their behavior. This threshold model provokes riots and fashion trends, and it can also be used to improve insurance decision-making.

To persuade homeowners that insurance for low probability, high consequence events is smart, use statistics that show the number of homeowners who have wisely invested in appropriate insurance coverage or, if those numbers are too low to be effective, use the percentage of homeowners who have benefited from insurance policies.

Information Bias

The problem

It’s impossible to make informed decisions when the information at your disposal is inaccurate or inadequate. Both insurance providers and policyholders can fall prey to this bias. Insurance providers may not have all of the information they need to correctly assess the risk of a policyholder, and likewise, policyholders may not have the information or understanding they need to make sound insurance decisions. After all, insurance can be a dry, confusing subject-matter for the uninitiated.

The solution

Overcoming this particular bias should be the main mission of your marketing plan, including your website, blog, and social outreach. Instructional videos, infographics, testimonials, webinars, and individual outreach are all critical to ensuring policyholders in risk-prone areas have the best information available to make intelligent decisions.

Consumers in hazard-prone areas need all of the data and your expert guidance when it comes to making sound decisions about appropriate insurance coverage for their area. They need to be able to correctly assess their vulnerability, to feel the impact of low probability, high consequence events, and to make choices that reflect the increasing probability of these events as the climate changes.

If you need help communicating more effectively with clients in hazard-prone areas, get in touch with the insurance marketing experts at AgenciesOnline. We provide a wealth of resources to help you reach and impact your target market.