Insurance
Advice culture and remuneration
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The psychology behind good and bad advice

We are all motivated reasoners and our motivation is rarely simply financial. Life insurance commissions, much like Satan and the universe, are too frequently blamed for a wide range of ills and calamities. The devil, for example, is blamed for a host of trials and tribulations: infidelity, addiction and temptation, when the root cause, more often than not, is personal failings.

Similarly, the commission model gets the blame for poor advice, poorly documented and delivered advice, no advice and lapse rates when objectively it isn't responsible for the life insurance industry's myriad of problems. Pointing the finger of blame at commissions may be convenient but it is too simplistic and doesn't address the real issues.

The truth, based on the science of psychology, is that remuneration and monetary reward is not the key driver of human behaviour. Suggestions that human behaviour is all about financial incentives, like commission, seem to be based on a presumption that human behaviour mirrors relatively simple rules that are often seen in animal experiments such as Pavlov's dogs and Skinner's theory on operant conditioning.

This has led to proposals to limit and restructure all sorts of remuneration models including commission and executive incentive structures, based on the misguided belief that if human beings are simply rewarded and incentivised in the right way, the output will be the right behaviour.

But humans are not as simple as Pavlov's dogs or Skinner's rats. According to the field of cognitive science and social psychology, we are all motivated reasoners but our motivation is rarely simply financial. The strongest motivating factors relate to tribal membership and alignment, identity and a sense of belonging.

In terms of organisations and professions, values and culture play a huge role, indeed the denominating role, in shaping behaviour. This is explored in greater detail on page 8 but at a high level, if a culture is unsound then a remuneration structure won't fix it.

On the flipside, if a culture is sound, the remuneration structure shouldn't matter much. It is critical that any reform agenda addresses the real problems and enacts real change. If not, it will only increase business costs, which means higher costs to consumers.

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