The devastating impact of hurricanes Helene and Milton has spotlighted a critical crisis: America's increasing vulnerability to natural disasters and the resulting financial strain on households. Hurricane Helene alone caused an estimated $250 billion in damage, much of it uninsured. With extreme weather events on the rise, a growing number of Americans face mounting financial risk. Between 2018 and 2023, 78% of U.S. residents reported being directly affected by extreme weather, often with severe financial aftershocks, including credit score declines and increased debt in collections.
Despite this, many households remain underinsured. Cost, complexity and confusion around policies deter individuals from securing adequate coverage, leaving them financially exposed. Behavioral science, which explores how people make decisions and the factors that shape those choices, provides actionable insights that can help insurers bridge this gap. Drawing from the Financial Health Network's Insurance Behavioral Design Guide, insurers can adopt innovative practices to support financial stability for individuals and communities in today's volatile landscape.
Understanding barriers to coverage
Roughly 3% of households in America lack any form of insurance — auto, home, renter's, health or life. Moreover, residents in disaster-prone states are often the least likely to carry residential insurance. Behavioral science offers key insights into why this gap persists.
For example, the availability heuristic — a mental shortcut where people assess risk based on recent experiences — can shape how they view their need for insurance. After a disaster, people may perceive a higher risk of similar events, but without a recent reminder, the urgency often fades. On the other hand, the ostrich effect suggests that people may not seek coverage simply because they don't want to confront uncomfortable information.
Additionally, status quo bias, or the tendency to avoid change, keeps many people from switching to better insurance options even when available.
Perceptions of insurance costs also deter many individuals. Over half of policyholders who dropped coverage cited high premiums as a factor. Here, loss aversion — people's preference for avoiding losses over seeking gains — discourages them from paying for a policy for which they may never make a claim. Additionally, friction in accessing coverage — like policy complexity and cumbersome options — often prevents consumers from completing the process. Insurers can drive higher uptake by strategically addressing these behavioral barriers.
Innovative approaches to boost engagement
To overcome these natural behaviors and bridge the insurance gap, insurers are deploying innovative strategies to make coverage more accessible and to encourage proactive financial preparedness.
1. Alternative premium models
In addition to lowering premiums, insurers are experimenting with flexible premium models to reach more consumers. For instance, Hugo's pay-as-you-go auto insurance allows customers to buy coverage in three, seven, 14, or 30-day increments, making insurance more manageable for consumers with variable incomes. Ladder, a life insurance provider, offers adjustable coverage, allowing policyholders to increase or decrease their protection based on life changes, like purchasing a home. These flexible options alleviate the commitment concerns that often keep people uninsured.
2. Building customer trust
Four in 10 people are not confident that their insurance policies will cover them in an emergency, while nearly 30% feel that insurance companies are not interested in serving them. To counter this mistrust, Lemonade's "giveback" program donates unclaimed premiums to causes chosen by policyholders. Such programs not only align the insurer's interests with those of the customer but also foster loyalty and trust — key factors in promoting financial resilience.
3. Simplifying uptake
Choice overload and friction from searching for policies can be an obstacle to individuals obtaining coverage. Root Insurance's partnership with Carvana, for instance, simplifies the process of searching for insurance by letting customers apply for auto insurance while purchasing a used car. Similarly, AXA's pilot with Western Union offers life and disability insurance alongside remittances, reaching underserved communities. These partnerships simplify the path to coverage by embedding insurance with existing services.
4. Using motivating messaging
Marketing can play a pivotal role in encouraging people to consider coverage. Almost one in five uninsured individuals avoid life insurance because they don't want to think about death. MassMutual's "Uncomfortable Truths" campaign addresses this head-on, using an approachable tone to bring attention to tough topics. By tackling discomfort directly, insurers can encourage people to take protective action.
5. Helping customers choose their policies
Uncertainty about coverage needs ranks among the top reasons people avoid buying life insurance. Tools that guide consumers toward suitable plans can help address this issue. For instance, Washington D.C.'s health insurance marketplace, DC Health Link, offers a smart calculator to help users estimate costs and benefits, making it easier for them to choose an appropriate plan. Simple yet effective tools like this promote confident decision-making and help consumers find the best coverage for their needs.
A path to greater financial resilience
As extreme weather events continue to rise, accessible, resilient insurance solutions are more crucial than ever. By applying behavioral insights, insurers can design customer-centered products that address real needs, foster financial stability and build loyalty. When customers feel supported by their financial institutions, satisfaction triples, along with the likelihood of referrals and additional product purchases.
For insurers, leveraging behavioral insights isn't just beneficial — it's essential for staying relevant in a rapidly changing landscape. By innovating and simplifying insurance, companies can empower consumers, help close the insurance gap and build a more resilient society prepared for whatever storms may come.
