Overcoming 'present bias': The key to closing the protection gap?

Getting clients to see the value in protection cover isn’t always easy, especially given the intangible nature of traditional insurance. However, rethinking the way protection works is giving advisers an opportunity to overcome this barrier, writes Greg Levine, in the first of our Sales as a Force for Good article series.

We’ve all done it: the alarm goes off in the morning and we hit the snooze button. You know that getting up later means less time to get ready but the idea of longer in bed is too good to resist.

Present bias – where people favour immediate reward and gratification over longer-term gain – often leads us to make decisions that can work against us later on.

Whether it’s clients failing to make adequate financial plans for retirement, seeking quicker (and potentially risky) investment returns or foregoing the expense of insurance against some future, unforeseen risk, advisers will be all-too familiar with present bias and people’s pursuit of instant gratification.

What present bias - sometimes also referred to as hyperbolic discounting – ultimately tells us is that people tend to place more value on something that’s achieved in the immediate moment, over something that has a payoff that is greater in the future.

At Vitality, we see the impact of present bias both in getting more people to recognise the importance of financial protection, but also in the wider challenges we face as a country because of our nation’s poor health.

Present bias is as much at play in people’s decision to eat unhealthy food that offers instant pleasure despite the longer-term health risks, as it is in the decision to spend their money right now on something other than insurance. In most cases, people know they’re probably not making the best decision – but, as human beings, we do it anyway.

More than just 'added value'

As an industry, we hear a lot about ‘added value benefits’, giving clients access to certain services they can use not just at the point of claim. Therefore, offering more upfront value.

To really counter a client’s present bias though, we can take this approach a step further and deliver immediate value that’s central to the whole insurance proposition, not just as an extra bolt-on.

Encouraging clients to engage with immediate rewards and benefits from day one helps to reinforce their awareness that the premium they’re paying is giving them something tangible on a daily basis.

We see the effectiveness of this approach play out through Vitality’s unique Optimiser, which gives members access to Vitality’s lowest premium, in anticipation of a lifetime of positive health choices.

The lower premium a client pays upfront with Optimiser gives them the immediate reward of a saving on their insurance – £43m across all Optimiser members in 2023 - without having to sacrifice on the quality of cover. It also means they're more likely to take out comprehensive cover. Almost 80% of Optimiser members took out Serious Illness Cover or Income Protection with their Life Cover last year¹.

Most importantly, it also means they are more likely to engage with the Vitality Programme. In fact, Optimised members are three times as likely to engage and reach Silver Vitality status and above than those not on Optimiser¹.

Further supported by measures like our annual benefits statement showing exactly what a member has saved or earned back from their plan, we’re giving them more reason to engage and stay with us over time.