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Get Finance Smart - Thinking long term

Insurance products, savings and investments are crucial elements of financial health that evolve throughout our lifetime. But getting consumers to think long-term is not easy.

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Get Finance Smart - Thinking long term

  1. 1. GET FINANCE SMART Thinking Long Term
  2. 2. GET FINANCE SMART Thinking Long Term A key role for financial services providers is encouraging long-term financial health – helping customers to be financially secure for the duration of their lives. Insurance products, savings and investments are crucial elements of financial health that evolve throughout our lifetime. But getting consumers to think long-term is not easy, especially in today’s uncertain context. If we don’t know what will happen tomorrow, it can be very difficult to commit financially to something that won’t pay out for 30 years (if at all, in the case of life or critical illness insurance). Insurance is the only product designed to protect us from the uncertainty that surrounds us; yet consumers do not seem to turn to insurance when the context grows in unpredictability. Wharton professors Robert Meyer and Howard Kunreuther, authors of the Ostrich Paradox explain that this is a costly mistake, for individuals and businesses alike: “Rather than seeing decreases in damage and fatalities due to the aid of science, we’ve instead seen the worldwide economic cost and impact on people’s lives from hazards increase exponentially through the early twenty-first century, with five of the ten costliest disasters in history with respect to property occurring since 2005.” In the case of pensions and investments, consumers know that they are increasingly likely to live longer; but the impetus to save for a pension is low when faced with daily expenses and more appealing ways to spend money with an immediate reward. Around the world, we are not prepared for our future reality - only 13% of workers globally have a written retirement plan; 44% say they have a plan, but that it is not written down. Just 32% of workers have a backup plan if they are unable to continue working before their planned retirement age.1 Products with a long life-span are a huge opportunity for financial services, not only in terms of product sales but also in terms of developing meaningful, long-term customer relationships. So how can financial service brands help customers to build a long-term mindset? 1 The Aegon Retirement Readiness Survey 2018; 4,400 workers and 1,600 retired people surveyed across 15 countries
  3. 3. GET FINANCE SMART Thinking Long Term PROMPTING AWARENESS WITHOUT PROMPTING NEGATIVITY While it is important to prompt customers to engage in long-term financial planning, financial service providers have to be cautious with how they approach the topic. Especially in the case of insurance, horror stories of insurance going wrong or not paying out work against the industry. Negative perceptions are particularly damaging to long- term financial products, as due to their intangible nature, trust is crucial. Insurance customers need to know that their insurer will come through for them if the worst happens. Investment customers need to believe that their provider is acting in their best interests, and that their returns will be a significant improvement on their investment. Ellevest, the investment fintech aimed at women, has done an amazing job of building awareness of the investment gap between men and women. Facts such as women living longer and with salaries that tend to peak sooner mean that it is more important for women to invest than men. Yet this is the opposite of what is happening. Ellevest prompted a natural-feeling conversation through channels like PR using celebrity investors such as Serena Williams. By raising awareness of the facts in an empowering way, as well as providing solutions, Ellevest has grown at speed. Just two years after launch, Ellevest supports women in all 50 US states to save for their life goals – the most common aim being to build wealth, followed by the long-term goal of retirement2 . And it is not just consumer-facing insurance products that have to prompt awareness of risks that are not immediately obvious. UK insurer Hiscox wanted to demonstrate the new realities small business face as we as a society move further online, waking them up to their insurance needs without scaring them. Digital risks are growing, but many small businesses think they are too small to be targeted. Hiscox and AMV BBDO created a series of executions to position the brand as a leader in the growing cyber risk marketplace. The execution included a pulsing red light triggered by cyber-attacks on digital posters; the lights gradually built over 24 hours as attacks occur, before they reset. Initial trials suggested the number of attempted attacks (and pulsing dots) each day would average 23,000; but the maximum number of attacks detected was 61,805 in one 24-hour period3 . The campaign raised awareness about the risk that will only grow going forward and is currently hugely underestimated. 2 https://www.thedrum.com/creative-works/project/amv-bbdo-hiscox-cyberlive 3 Ellevest https://www.ellevest.com/magazine/news/ellevest-raised-33-million-annotated-press-release
  4. 4. GET FINANCE SMART Thinking Long Term PROMPTING BEHAVIOUR CHANGE; FROM SMALL TO BIG People find it fairly easy to think short-term; behavioural economists describe a human tendency towards “instant gratification and over-optimism”4 . This inclination can often lead to “poor decisions and easy fixes”5 ; for instance, popping a pill to stay healthy, rather than investing in a long-term plan - vitamins and dietary supplements experienced a 9% global growth annually between 2012-20176 . Financial services have to compete with their customers’ short-term behaviours to long-term problems in order for their product to even be considered. But can financial services use these short-term mindsets to prompt a long-term change? In the savings and investment category, behavioural economics has been applied so that investors can build their wealth with the smallest loss to their daily lives, with products such as Lloyds Bank in the UK’s long-standing Save the Change, or Money Box (an investments fintech which partners with challenger bank Monzo), both of whom round up the cost of your everyday purchases and invest the change. The everyday impact is barely noticed, but it demonstrates that small can build to big. These initiatives only require buy- in from the user – from there, the algorithm does the work. In the insurance industry, Vitality has demonstrated that small prompts can be used to change behaviour – applying the same principle that small changes can build to a big difference. Vitality uses education, prompts and benefits to help its users to live more healthily: offering tracking to empower them to take control of their fitness and reducing the cost of health-promoting behaviours, such as gym membership. The program means that the healthier you get, the more additional benefits you get, such as holiday discounts. This is good for customers and good for insurers - lifestyle-related diseases account for 60% of deaths globally, but Vitality members generate up to 30% lower hospitalization costs and depending on market, live from 13 to 21 years longer than the rest of the insured population, and up to 41 years longer than comparable uninsured populations7 . This empowering approach has worked for insurers around the world, with rights to the program having been bought by insurers in 15 markets, and over 5.5 million people covered8 . 4 https://hbr.org/2017/06/can-insurance-companies-incentivize-their-customers-to-be-healthier 5 https://hbr.org/2017/06/can-insurance-companies-incentivize-their-customers-to-be-healthier 6 Euromonitor International’s Lifestyles Survey 2017 7 https://hbr.org/2017/06/can-insurance-companies-incentivize-their-customers-to-be-healthier 8 https://hbr.org/2017/06/can-insurance-companies-incentivize-their-customers-to-be-healthier
  5. 5. GET FINANCE SMART Thinking Long Term PROMPTING LONG-TERM FINANCIAL HEALTH Long-term financial planning is a subject that would benefit from more consideration, discussion and action. It is an important issue that needs solving; for consumers, for financial services and for society. But it is complex, intimidating and not a topic consumers are easily willing to engage with. By raising awareness and offering empowering and easy to implement solutions to challenges that often feel unsurmountable, financial service providers have a huge role to play in the global state of long-term financial health while at the same term developing more emotional and meaningful relationships with their customers that last a lifetime. If you are interested in learning more about the subject of this article, please contact Sarah Emmerson, Insights Planner, emmersons@bbdoknows.com, ABOUT BBDO KNOWS BBDO KNOWS is a planning resource for the BBDO network. BBDO KNOWS offers thinking, strategy, insights and inspiration on key categories, key themes and consumer segments. If you are interested in learning more about the way BBDO thinks please contact Melanie Norris, Global Planning Director, norrism@bbdoknows.com. DISCLAIMER The information and materials in this article are for general information purposes only. Whilst we try to ensure that all information and data in this article is accurate, complete and up to date, this article should not be relied upon and you should seek advice if you intend to use or rely upon any of the insights or data contained in this article. This article must not be shared, downloaded, copied or distributed for commercial purposes without the prior approval of BBDO. © BBDO 2019 All rights reserved.