Supplemental health industry for small companies: Challenges and opportunities
Small companies in the supplemental health products market need to understand the unique challenges these products present in order to compete effectively.
Superannuation is one of the most valuable products that working Australians own and yet one of the products they care least about.
Forcing people to buy a product when the value can’t be unlocked for many years is a poor starting point for engagement. Not surprisingly, few choose to delay extra gratification today despite knowing the difficulty of funding decades in retirement.
The industry needs a new tactic to solve this contradiction. Attempting to persuade members to save more super by using broad-based, one-size-fits-all targets, has failed.
But research suggests another path: when members are able to see their future selves in vivid and realistic detail, they are more willing to make choices today that may benefit them in years to come.
Super funds can play a significant role in connecting the two, which will require a far deeper understanding of their members.
The well-known tendency for people to care less about future outcomes than present ones is known as temporal or hyperbolic discounting. However, research shows the problem is deeper: people have a fundamental inability to project their thoughts and feelings into the distant future.1
A key problem is the conflict between temporally distinct selves. The wishes of today’s self (such as eating a pizza for lunch) often clash with the challenging desires of tomorrow’s self (such as losing weight by summer). It’s a strange concept but one that explains why so many of us prioritise today at tomorrow’s expense despite knowing the long-term consequences.
In many ways, people often treat the person he/she will become in the future as another person (a tendency confirmed by scanning brain activity of people when they view others as well as themselves at points in the future).
Rather than resolve this contradiction, research shows that strengthening the link between these separate selves in positive ways can effectively change behaviour.
If we care for other people, such as children and grandparents, we make sacrifices for them– and the same is true for our future selves, according to associate professor of marketing Hal Hershfield, who has researched the field.
“When the future self shares similarities with the present self, when it is viewed in vivid and realistic terms, and when it is seen in a positive light, people are more willing to make choices today that may benefit them at some point in the years to come,” he wrote in a research paper.
One study conducted by Hershfield and others surveyed approximately 1500 US citizens and found that those who felt the most similar to their future selves had accumulated the most assets over time, even after controlling for other factors such as age, location and income.
Research suggests that bringing the future closer to home can make it more real. The same effect is at work on lung doctors, who smoke far less than the general population because they see the consequences of smoking.
In another study, Hershfield and colleagues took a person’s photo, digitised it and then aged it. The person was then put in a virtual reality environment where he/she could interact and see himself/herself in a mirror. Those exposed to images of their future selves put twice as much money into a hypothetical savings account.
Other research also suggests that attitudes toward the elderly can act as a proxy for attitudes toward the future self: negative views of the elderly held earlier in life can lead to worse cardiovascular health later in life while positive views of one’s own aging process is associated with increased longevity.2
This is challenging territory for super funds given the predominant youth-oriented culture, but points the way towards new areas to explore.
However, the success of strategies to bridge the divide between members’ future self and their current self rests on accurate information about who they are today. If speaking to members in terms of their future selves is the key to engagement, then the converse must hold as well; inaccurate portrayals of the future must lead to disengagement.
The super industry’s dominant comfortable retirement savings target is not a true reflection of who they are or who they will become. For example, it is built from the ground up based on assumptions about our retirement wardrobe. For men, this includes cost estimates for an Akubra hat, Croc sandals and a sleeveless V-neck singlet. I have proudly adopted this look on the weekends as a recent migrant to Australia. While this version of a comfortably attired retirement resonates with me personally, others with more fashionable aspirations may tune out.
Milliman’s quarterly Retirement Expectations and Spending Profiles (ESP) report analyses the spending data of 300,000-plus retirees and allows funds to tailor their communications to the individual circumstances of members.
It reveals how spending in retirement varies by age, household composition, location and affluence. It also shows the composition of the spending basket in retirement, the assets needed to support a range of retirement lifestyles, and the impact on spending, and required levels of savings for renting relative to home ownership.
Funds can then harness powerful analytics to understand the likelihood of members meeting retirement objectives that are truly meaningful to them.
In this way, funds can begin the journey to help members see their retired selves in meaningful and positive terms, forming the basis for genuine engagement and better long-term decisions.
This document has been prepared by Milliman Pty Ltd ABN 51 093 828 418 AFSL 340679 (Milliman AU) for provision to Australian financial services (AFS) licensees and their representatives, [and for other persons who are wholesale clients under section 761G of the Corporations Act].
These results are based on simulated or hypothetical performance results that have certain inherent limitations. Unlike the results shown in an actual performance record, these results do not represent actual trading. Also, because these trades have not actually been executed, these results may have under-or over-compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated or hypothetical trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to these being shown. Milliman does not manage the underlying fund.
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