During a discussion with my father, a man with 20 years of experience in the insurance industry under his belt, I asked why he felt insurance companies had it so hard. He explained how most people cannot afford to pay insurance premiums which typically come due quarterly or annually, depending on the contract. He then went on to say that a good number of Nigerians, even those with a firm understanding of insurance, simply don’t want to protect their valuables.
As a student of psychology, such statements immediately sent alarm bells ringing. It makes no sense that an informed person would reason this way and just not want to protect valuable life and property. What then? Cognitive biases. Specifically, there are two biases that could help explain why people may choose to act in this way.
Want to Rock the Boat?
The first, Normalcy bias, is easy enough to understand as most people can identify with it. Normalcy bias is the reluctance to plan for negative events that may occur in the future. It is as simple as not wanting to rock the boat. This bias might resonate with people who have superstitious beliefs about how their actions could potentially tempt fate.
This also explains why religious individuals who believe that the act of buying insurance speaks negativity into existence would keep trusting in a deity for protection. Having been raised a Christian in Nigeria, it is also very obvious to me that people might translate the acquisition of insurance coverage as not trusting God or believing in the power of prayer.
Normalcy bias is a bias because the fact that you choose to ignore the possibility of a negative event does not reduce the likelihood that it occurs. I mean one cannot completely knock it; normalcy bias is the brain’s way of helping us through the various negative possibilities in life. Imagine even just a few calamities that could befall you right now (this is where Nigerians go “God forbid!”).
Now imagine that your brain remains consciously aware of those adverse possibilities and constantly has to find ways to prevent their occurrence. You would be driven to insanity.
Although as with all other biases, some people are more prone to the Normalcy bias than others, we all fall victim to it, and it is not one we can wish away, nor should we want to. The problem is, although this bias helps preserve our sanity, losses cannot be wished or hoped away.
As a mitigant against this type of bias, insurance companies need to gear their marketing towards the typical Nigerian with the message that although we wish it to be, all is not well and the future is not that secure. The rule of thumb should be, if it is valuable, it should be insured.
This bias is the tendency to underestimate the possibility of a negative event occurring to oneself. Humans, in general, are psychologically predisposed to this bias. Nigerians may be particularly prone to it, being a nation known for extreme optimism in the face of difficult situations.
The positivity illusion ("Optimism bias") is such a systematic bias that it prevails even in the face of evidence that invalidates our beliefs. In her 2011 book, "The Optimism Bias", psychologist Tali Sharot attempts to understand just how optimism bias manifests. She asked participants in an experiment how likely they thought they were to have cancer in the future. Their answers were recorded, and participants were then informed about the average person’s statistical likelihood of getting diagnosed with cancer (which is somewhere around 30% based on the data). Following this, participants were asked the initial question once again.
What did Sharot find? The participants that initially had the lowest estimates of their likelihood of a cancer diagnosis (i.e. the most optimistic people) tended to increase their likelihood estimations by modest amounts. In fact, these "positive" people stuck to percentages below 30%. For example, individuals who had previously answered 10% updated their estimate marginally to 11%.
Optimism bias is a coping mechanism that helps us feel good about ourselves and life in general. However, its tight grip could lead us to make poor choices regarding securing our life and property against possible adverse events. When we underestimate the true risk, we are less likely to take steps to mitigate it.
If the positive people in the study did not have health insurance, being told that their likelihood of having cancer is much higher than they had thought before would be unlikely to convince them to purchase insurance coverage.
It's hard to understand how the brain comes up with the idea that we’re less likely to be in an accident, be diagnosed with cancer or lose a loved one. And it is unlikely this bias can be completely eliminated. The onus is on insurance companies to make us aware of our susceptibility to optimism. They have to burst our bubble.