(and how marketers can use this to better connect with customers)
Firstly, what is ‘cognitive bias’?
A cognitive bias is a mental shortcut that causes us to make decisions that aren’t always logical or objective, often affecting our thinking in ways we aren’t aware of. Research by Dr Simon Moore suggests about 95% of our actions are made subconsciously, using our System 1 “caveman brains” to arrive at these shortcuts.
For insurance marketers, understanding this behavioural psychology is gold because insurance decisions are rarely just about the numbers. Beneath the surface, several psychological factors are influencing the choices we make. Once you know how these mental shortcuts operate, you can tap into them to boost customer engagement, or conversion (nudges) – whether that’s through the specific words you choose, creating marketing that really grabs people, or using gentle nudges to guide customers toward the actions you want them to take.
You’re likely already using many of these techniques, but this might highlight opportunities you haven’t fully explored yet. Let’s look at how key biases show up in insurance and what you can do about them:
Top 5 biases influencing insurance decision-making (and marketing applications)
- Endowment Effect: Why we overvalue what we already have
The endowment effect is a cognitive bias where people value something more highly once they feel ownership over it. In insurance, this creates a challenge because policies are abstract promises of future protection. Unlike tangible products, customers struggle to appreciate coverage value until they feel personal ownership. This is why insurance often feels like a grudge purchase—people are asked to value something that doesn’t yet feel like theirs. However, once customers do feel ownership, they become reluctant to give up coverage, even when faced with cheaper alternatives.
Marketing application: Help customers feel ownership before purchase. Offer free trials with messaging like “Try our coverage risk-free for 30 days.” (We did this with our Agria campaign, offering 5 weeks free protection coverage create ownership which made customers reluctant to give up their safety net once experienced). Personalisation also amplifies this effect. Create coverage suggestions that feel tailor-made: “Based on your location and lifestyle, here’s your personalised protection plan.” When customers see their specific circumstances reflected, psychological ownership kicks in immediately.
- Present bias: Our desire for Instant Gratification
Present bias served our ancestors well when immediate threats were life-or-death and the future was highly uncertain. Our brains evolved to prioritize immediate survival needs over abstract future scenarios, creating a hardwired preference for “now” over “later.”
In today’s world, this translates into customers over-valuing immediate rewards over long-term benefits, (which explains why some people struggle to commit to long-term premiums). The pull of instant gratification often drives people toward options that deliver immediate value – like choosing lower premiums – even if it leaves them exposed to greater risks down the line. For example, people are more likely to buy travel insurance for a holiday next month than life insurance for their family’s long-term security, even though the statistical risk of needing life insurance is much higher. The difference? Future risks feel abstract, while the present feels tangible.
Marketing application: Combat this by highlighting the immediate value of coverage and access to benefits. Or, like many protection brands, offer introductory discounts or cashback offers to get them over the mental barrier. When customers see present-moment advantages rather than just future payouts, they’re more likely to act now instead of postponing the decision.
- Optimism bias: “That won’t happen to me”
Most people believe they’re less likely than others to experience negative events. This optimism bias leads to under-insurance; customers assuming accidents, illnesses, or disasters happen to other people, not them.
This bias is particularly challenging in insurance marketing because it’s fundamentally at odds with the core value proposition. They can acknowledge that car accidents happen every day, but somehow believe they’re better drivers than average and therefore less likely to be involved in one.
Marketing application: Real stories are far more powerful than statistics when it comes to overcoming optimism bias. Customer testimonials build emotional connections that numbers alone can’t. Take our LV= protection case study, for example, sharing Jennie Gow’s real experience made the message resonate in a way data never could. We’ve also developed tools like the Risk Reality Calculator which help people explore their personal risks through interactive engagement.
The key is to use authentic case studies and digital tools – without tipping into fear-mongering language, instead people are guided to their own conclusions about what’s right for their circumstances. Done well, they see the true value of insurance in their own lives – not just the price tag.
- Anchoring bias: The first number wins
This is where the first piece of information people hear becomes their reference point for everything that follows. If a customer hears a high premium quote first, it sets a mental anchor that makes subsequent offers seem reasonable by comparison.
Anchoring bias is incredibly powerful in insurance because customers often don’t have good reference points for what policies should cost. Unlike buying a car or a house, where customers have some sense of market prices, insurance premiums can feel arbitrary. The first quote they receive becomes their baseline for evaluating all subsequent quotes.
Marketing application: Control the anchor by presenting information strategically through ‘choice architecture’, offering well-differentiated tiers that give customers choice without overwhelming them. Start by showcasing your top tier coverage options first – this makes your standard policies look like great value by comparison – known as ‘skiing downhill’ – as it’s much harder to upsell customers once they’ve anchored on basic coverage. Or anchor with competitor pricing to position your rates as the smart choice.
- Social proof: Following the crowd
As social creatures, we look to others for validation. When friends, family, or colleagues purchase insurance, we’re more likely to consider it ourselves. This herd mentality is particularly strong during uncertain times.
Social proof is especially powerful in insurance because it’s a category where customers feel vulnerable making decisions alone. The complexity of policies and the abstract nature of the benefits make people want reassurance that they’re making the right choice. Seeing that others have made similar decisions provides that reassurance.
Marketing application: Showcase customer reviews, testimonials, and popularity indicators. Use phrases like “Join thousands of satisfied customers” or “Most popular plan” to leverage this natural tendency to follow others. Creating a sense of community around insurance decisions can help overcome scepticism and boost engagement.
Final thoughts
The insurance industry has always been built on human psychology – our fears, hopes, and need for security. By understanding the behavioural science behind these decisions, marketers can create more effective campaigns, better customer experiences, and ultimately, help people make insurance choices that truly protect what matters most to them.
These 5 biases are just the tip of the iceberg! If this has whet your appetite for behavioural psychology in financial services, check out our webinar ‘You’re being irrational’ or get in touch here for a chat about your insurance marketing strategies.