DISCLAIMER: I have two Australian Labradoodles & they are considered “family”. In fact, in my house the pecking order for my wife goes like this – kids…dogs…and then me!

 Is a Group Long-Term Care Insurance Policy More Important Than Pet Insurance?

“Yes. But I think about my pets more than needing extended healthcare 20-30 years from now.”

“Yes. But stuff happens and my pets may need medical care.”

“Yes. But I won’t need any Long-Term Care services…it won’t happen to me.”

“Yes. But it’s Pet Insurance is a lot less expensive that Group LTC Insurance.”

I can go on for paragraphs sharing similar attitudes and sentiments of employers and their employees.  In fact, you may be reading this and feel the same way!  We’ve seen industry benchmarking data and LIMRA research reports that share statistics on the prevalence of Pet Insurance being offered as a voluntary benefit by employers of all sizes.  However, in those same reports and surveys, healthcare and Long-Term Care are front of mind when most Americans are thinking about their retirement. They list Long-Term Care is their greatest retirement risk.  So why the disconnect? Why aren’t more employers offering this valuable coverage? Why aren’t more Americans buying these policies? These are all tough questions and nobody’s “cracked the code” yet, but we’re getting better at addressing this important issue.

Behavioral Finance and Group LTC Insurance

We all have unconscious and conscious biases that direct our decision making, especially with financial decisions such as retirement and healthcare planning. As someone who works in the Financial Services and Insurance industry, you've heard about how the evolving field of Behavioral Finance is changing the way benefits are communicated. Behavioral Finance combines behavioral and cognitive psychological theory with conventional economics and finance to provide explanations for why people make irrational financial decisions.  If we want to articulate why Long-Term Care Insurance coverage is important and why it should be offered a voluntary or executive benefit, we need to better understand what drives our decisions & behavior.

General Observations & Improving Decision Making 

• People tend not to be rational actors who make decisions logically. Instead, we’re influenced by a variety of psychological and behavioral biases, heuristics, gut feelings, tendencies, and cognitive barriers that impede our ability to make purely rational decisions. Because of these limitations, we often make decisions that go against their best economic interests.
• We need be engaged and motivated to address a specific challenge or decision before we’ll pay attention to it
• People tend to buy on emotions and justify our decisions with facts (numbers)

Here are four behavioral economics phenomena that should be taken into account when sharing the value of Group LTC Insurance programs for employers and developing communications programs for employees:

1. Framing: Decisions can be described in positive or negative terms that are objectively identical but can have diverging influences on choice outcomes. For instance, milk can be described as 98% fat-free (positive frame) or 2% fat (negative frame). Framing can be combined with loss aversion by describing the potential outcomes as either losses or gains.
2. Hyperbolic Discounting: Standard models in economics assume that individuals discount future rewards, which means that individuals prefer to receive a good sooner rather than later. Hyperbolic discounting describes time-inconsistent discounting and behavior, where individuals make choices today that their future self would prefer that they hadn’t made, and that their future selves, in the absence of commitment devices, may well overturn. For example, Group LTCI provides peace-of-mind today, but likely benefits much later after the purchase. That’s hard for most people, as they want benefits now for most purchases.
3. Inertia (aka Status-Quo Bias): If people aren’t motivated to take action or make a decision, they often do nothing and allow the status quo to continue.  Sounds familiar with Long-Term Care planning, right?
4. Social Norms: People can be influenced by decisions and actions that their peers make. For example, employees might be influenced to hear that their work colleagues are contributing significant amounts to their 401(k) plans, or are adopting healthy exercise habits.

This summary is just the a small piece of the robust research findings regarding behavioral economics. We consider ourselves “students” and will continue to share our lessons learned regarding communicating and implementing Group LTCI programs.