If you ask anyone you come across, be it in a taxi, the office, shopping mall or campus in South Africa whether their smartphones are insured, a large number of people will say “yes.”. Now, ask the same group of people whether they have life convert or income protection and the room will most probably go quiet.
This paradox is both interesting and striking. People will pay a monthly premium to protect their phone or device than can be replaced but will hesitate to insure their live, health of their income which cannot be replaced. And the natural question is, why does this happen? And the simple answer to that is the psychology of risk.
The Human Brain is Not Built for Abstract Risk
If we look through the evolutionary lens, our brains are wired to perceive and respond to immediate and visible risks. Our ancestors survived by reacting quickly to predators, fire or famine, not by planning for events decades into the future.
How does this connect and show up when we make insurance decisions?
- Availability Bias: We fear risks that are visible, tangible and recent. A common risk is phone theft, and our natural reaction is to buy cover. Death feels distant so we would rather delay.
- Loss Aversion: Psychologists have proven that humans feel the pain of losing something more instantly that the joy of gaining something. The though of replacing a stolen phone immediately feels more urgent than planning for death that could occur decades from now.
- Optimism Bias: We often think far off risks “won’t happen to me” and that somehow these tragedies are reserved for other people besides ourselves. Sadly, reality always proves otherwise.
These biases influence people to pay more attention to insuring small everyday risks and ignoring or neglecting big life changing ones.
Why Small things feel BIG and BIG things feel Small
It is easier to sell, explain, reason with something that is tangible. Physical objects such as phones, laptops and cars. We hold them, use them everyday and feel their absence when the are gone. It feels like common sense to have immediate insurance for these items even though they are grudge purchases.
Insurance for the invisible stuff like Death and disability, are treated as optional because of their intangible nature. It is only when disaster that these covers are appreciated and missed.
Ironically, it is the same reason people may panic about losing wi-fi for a day but fail to invest in their retirement. The immediate inconvenience feels larger than the long-term catastrophe.
The Cultural Layer in South Africa
In South Africa, our psychology is further shaped by our cultural practices. Burial societies, stokvels and other community based financial systems have acted as a form of insurance or savings. They have emphasized the need to address short term and immediate needs like funeral costs, rather than longer term objectives.
This is partly why funeral policies remain the most widely held forms of insurance in the country and strongly outpacing life insurance and income protection. People will rather pay for a product hat solves a visible and culturally urgent problem (ensuring a dignified burial) than for an abstract promise about the future.
What This Means for Insurers?
Understanding this psychology should change how insurers design and market products. Abstract slogans and tag lines like “Ensure the Future” do not connect effectively with the human brain. A better approach could be:
- Change the narrative: Focus on everyday and relatable outcomes. Instead of framing it holistically and saying, “Insurance protects your loved ones”, be more direct and say, “This cover ensures your child’s school fees are always paid.”
- Make the invisible visible: Using tools like stories, real life case studies and dashboards to show the effects of underinsurance in practical everyday terms.
Lessons from Other Industries.
Other industries have thrived by mastering the art for turning abstract benefits to daily habits. Fitness apps make long term health goals exciting by gamifying the small wins and banks send instant notifications when you overspend which helps make financial health more visible in the moment.
Insurance can borrow these ideas and turn the abstract into something more relatable and encourage engagement. Imagine “risk meters” that could show a protection gap in real time.
From your Phone to your Future
The paradox of phone insurance vs Life insurance is not the failure of logic but rather a strong feature in the human psyche. People mostly protect what they touch rather than what feels distant.
The challenge for the insurance industry is to find a way to bridge the gap between phone and future and to make future catastrophes feel as urgent as a cracked cell phone screen.
If we can convince the nation to pay monthly premiums to cover a device they will replace in a few years, surely, we can convince them to protect the only life they will ever have.
Temwa Nyirenda| Control Lead – Santam Broker Solutions
