Why the study of behaviour is important for the insurance industry

December 14, 2012, University of Kent

In a new Lloyd's emerging risk report, a team of experts from the University of Kent has shown how principles from behavioural science can be used to manage new and emerging risks more effectively.

The team, which was led by Kent psychologist Dr Mario Weick, an expert on behavioural and situational influences on judgments, highlighted obstacles in the identification of risks and pointed out how insurers can overcome limitations in human judgments such as encouraging , or rewarding behaviour that contributes to better risk identification.

For the purposes of the Economic and Social Research Council (ESRC) co-funded report, which is titled "Cognition: Minding Risks -Why the study of behaviour is important for the ," emerging risk is defined as 'an issue that is perceived to be potentially significant, but which may not be fully understood or allowed for in insurance terms and conditions, pricing, reserving or capital setting'.

The report, which can be viewed at www.lloyds.com/the-market/tool … merging-risk-reports, also suggests that in order to better manage risk at a time when new or emerging risks are more frequent than ever before - partly due to new and developing technologies - organisations should focus on risk horizons that are changing rapidly and that are of strategic relevance to them.

Dr Weick said: 'We know quite a lot about the way people perceive risks, and about the circumstances that can hinder or facilitate the identification of risks. However, the evidence is scattered and often difficult to access for people outside academia. There is not enough cross-talk between scientist and the industry. Our report fills this gap and shows that human factors are an important part of managing risks.

'Risks involve uncertainty and wherever there is uncertainty people tend to rationalise their decisions. Acknowledging that biases exist is a hurdle that organisations have to overcome.'

The team, which also consists of Dr Tim Hopthrow, Professor Dominic Abrams and Professor Peter Taylor-Gooby, also emphasised the importance of involving the social sciences and humanities in risk analysis.

Cognition: Minding Risks was commissioned by the Emerging Risks team at Lloyd's. As part of the Performance Management Directorate at Lloyd's, it is the responsibility of this team to ensure that the Lloyd's market is aware of potentially significant emerging risks so that it can decide on an appropriate response to them. The team also maintains contact with the academic community, the wider business community and government.

Neil Smith from Lloyd's Emerging Risk team commented: 'Lloyd's is a world leader in managing specialist and unique risks. At Lloyd's we have a team dedicated to identifying, tracking and managing emerging risks. For some time this team has identified behavioural factors as a key risk facing our industry and financial decision-makers in general. This report highlights some of the main behavioural factors that insurers need to be aware of if they are to manage new and emerging risks effectively.'

Explore further: Who takes risks?

Related Stories

Who takes risks?

August 9, 2011
A forthcoming paper in Current Directions in Psychological Science, a journal of the Association for Psychological Science, by Bernd Figner, Research Scientist at the Center for Decision Sciencesat Columbia Business School, ...

Recommended for you

Women run faster after taking newly developed supplement, study finds

January 19, 2018
A new study found that women who took a specially prepared blend of minerals and nutrients for a month saw their 3-mile run times drop by almost a minute.

Americans are getting more sleep

January 19, 2018
Although more than one in three Americans still don't get enough sleep, a new analysis shows first signs of success in the fight for more shut eye. According to data from 181,335 respondents aged 15 and older who participated ...

Wine is good for you—to a point

January 18, 2018
The Mediterranean diet has become synonymous with healthy eating, but there's one thing in it that stands out: It's cool to drink wine.

Sleep better, lose weight?

January 17, 2018
(HealthDay)—Sleeplessness could cost you when it's time to stand on your bathroom scale, a new British study suggests.

Who uses phone apps to track sleep habits? Mostly the healthy and wealthy in US

January 16, 2018
The profile of most Americans who use popular mobile phone apps that track sleep habits is that they are relatively affluent, claim to eat well, and say they are in good health, even if some of them tend to smoke.

Improvements in mortality rates are slowed by rise in obesity in the United States

January 15, 2018
With countless medical advances and efforts to curb smoking, one might expect that life expectancy in the United States would improve. Yet according to recent studies, there's been a reduction in the rate of improvement in ...

0 comments

Please sign in to add a comment. Registration is free, and takes less than a minute. Read more

Click here to reset your password.
Sign in to get notified via email when new comments are made.