Einstein demonstrated that time and space are not fixed quantities, but rather depend on perspective. In the latest episode of “Paul the Insurer,” podcast host Paul applies this principle to the insurance industry with a simple yet uncomfortable realization: value and risk are also relative.
A cracked cell phone screen is a nuisance for some people, but a minor disaster for others. A payout of 10,000 francs can be a matter of survival for a single parent, while for a wealthy client, the same amount is hardly worth mentioning. That is precisely the crux of the matter: Insurers think in numbers, while customers perceive things in context. Those who focus solely on the bottom line and ignore the significance of a claim for the individual may make correct decisions, but they are not relevant ones.
People are not Excel cells
Behavioral economics provides the foundation for this, something the episode only hints at, but which is worth spelling out in detail. People overestimate dramatic, rare risks, such as a plane crash or a cyberattack that makes headlines, and underestimate the mundane, common ones: a burst pipe, a bicycle theft, or a bicycle accident on the way to work. They avoid deductibles, even when they would be more cost-effective mathematically, because a loss feels worse than a gain of the same amount feels good. And they react more strongly to the way an offer is worded than to its actual content. For brokers and insurers, this means: Communication is not an afterthought to the product, it is part of the product.
Trust as the true value
The episode’s most powerful idea comes toward the end: A claim is never just a demand for money. It is a question: Will you be there for me? A decision can be factually correct and still be perceived as unfair if the process seems cold, bureaucratic, or impersonal. Personalization is therefore not just a nice bonus for marketing, but the practical consequence of the relativity of values: Anyone who understands that two identical claims carry completely different weight for two different people cannot handle them using identical processes.
Physics as a mirror, not a model
The comparison with Einstein is apt, but it has a limitation that the episode itself points out: Relativity in physics can be calculated precisely once you know the frame of reference. Relativity in insurance isn’t like that, because empathy can’t be reduced to a formula, no matter how much data science might want it to be. That’s exactly what makes the profession more complicated than any pricing model admits. In the end, as the episode’s closing line states, insurance is about people, not particles. A line that some algorithms would do well to hang behind their coffee machines.
Binci Heeb
Paul the Insurer has additional content that might interest you, such as a series of interviews with insurance industry executives.
See also: The Butterfly in the Cyber Portfolio
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