In our last blog, we talked about how behavioral economics impacts the sales process and individual decisions of producers. As a short recap, each individual has internal “biases” that are formed based on past experience. Those biases can sometimes cause people to act irrationally (based on their past experiences or “gut feelings”), rather than making the logical decision.
This is an important concept for producers to understand, because recognizing those internal biases allows a producer to make the best sales decisions. Being cognizant of one’s personal biases can help prevent emotional decision making and thus increase insurance sales. This blog will overview a few of the common biases that affect salespeople. (Here is a full list of cognitive biases.)
Hindsight bias is the tendency to see past events as predictable. Producers with this bias may look at past prospect behavior or closed deals as predictable and likely to happen again with their current deal. However, this thought process removes objective decision making, and instead relies on the belief of past success. Perhaps a deal closed in the past, despite “warning signs” from the prospect, so a producer may assume this deal with the same conditions will close.
Producers can overcome this bias by approaching each sales decision as individual, while also following a distinct sales process that helps identify when a deal is off-track or should be abandoned.
Optimism bias is the tendency to be overly optimistic about one’s behavior and circumstances, causing one to believe they are less at risk of experiencing a negative event than others. This bias is quite common in all aspects of life, such as believing you are less likely to be a crime victim, or smokers believing they are less likely to develop health problems than other smokers.
A sales example might be a producer thinking their deals have a higher probability of closing than they truly do, causing them to ignore warning signs or fail to address concerns early in the sales process.
It is extremely difficult to eliminate one’s optimism bias, but it can be addressed. Producers should try to be cognizant if they are overly optimistic about a deal or sales situation. Sales managers should also monitor this, and try to keep the producer focused on objective factors of the deal. Examining past lost deals that the producer thought would close can also help improve insurance sales in the future.
Outcome bias is the tendency to judge a decision based on its outcome, rather than the quality of the decision. For instance, if a producer closes a particular deal, they might assume they did all the right things (even if the deal closed despite poor decision making). Having this bias can cause salespeople to ignore poor decision making or salesmanship, as long as they have the outcome they want. In the end, this will hurt the salesperson, as they will rely on their assumptions rather than objective data points, and it will negatively impact future sales.
While closed deals should certainly be celebrated, it’s important to analyze the details. How did the sale progress through the sales process? Would the deal have closed sooner if a warning sign was addressed sooner? Sales managers can evaluate individual sales with their producers, and together look at what was done right and what can be improved, rather than just assuming the producer did everything right because it eventually closed.
Want to learn more about how internal biases impact sales behavior—and how to use this knowledge to increase insurance sales? Be sure and check out our Boost Sales & Increase Revenue Predictability with Behavioral Economics infographic.