Survivorship Bias in the Reinsurance Industry

“When analyzing data, studies, or success stories, ask yourself: are you only seeing the winners? How many failed attempts have been edited out?”

I recently came across this quote from a thought provoking article by Robert Glazer which I liked very much. It reminded me of the all too familiar situation which leaders and professionals often find themselves in when setting forth on the journey to digitise. Often times, the journey involves many cut corners and speeding over speed bumps; Goals are not set, timescales are not thought through and we find ourselves in a situation of wondering where it all went wrong after so many others before now have made it work so well.

Hence, I introduce you to, or perhaps remind you of, the human tendency referred to as ‘survivorship bias’.

What is survivorship bias?

Survivorship bias is essentially the misunderstanding of cause and effect or, as Farnam Street puts it, mistaking the winners for rule and not the exception. It is the situation in which we tend to concentrate on the data or examples that have survived a particular process, inadvertently neglecting those that did not make it through. Take the BBC’s example of gyms who only show gym goers who have achieved their fitness goals on their posters and testimonials, whilst ignoring the considerably higher number of people who have barely been able to shift a pound.

The same goes for business. Just because one solution worked for one company, it doesn’t mean that same solution will work for another.

So what relevance does survivorship balance have to the reinsurance industry?

In the context of reinsurance, this bias could lead to misguided decision making and flawed risk assessment practices, as crucial lessons from past failures may remain concealed, masked by the allure of successful cases. Thus, when it comes to big implementation projects like digitisation, falling victim to survivorship bias can be detrimental to your reinsurance business.

Fear not though, as The Decision Lab reassures us that awareness can ensure better decisions and outcomes. Awareness of the realities of digitisation, and the time and resources a successful implementation can take, can scare some leaders into not approaching the subject at all. This is a massive shame because by shedding light on the importance of acknowledging the untold stories of those who faced challenges on their digitisation journeys actually puts us in a better place to find success in our own ventures.

I am a strong believer that any course of action is better than none when it comes to keeping up with the business world and its technological advancements. Even if the wrong course of action is taken first time, there is always an opportunity for learning which cannot be capitalised on if the leader does not take any action at all.

How to avoid falling victim to survivorship bias when planning for digitisation

There are two main points that spring to mind when I consider what I’d do as a reinsurance leader looking to make a success of my digitisation strategy without falling victim to survivorship bias.

Number 1, I’d start asking more questions - what can't be seen? When evaluating digitisation strategies it's crucial to challenge assumptions and dig deeper into the data. Rather than focusing solely on the apparent successes, which is so tempting to do.

By not being afraid to get inquisitive, you can develop a more balanced perspective of the challenges ahead and make better informed decisions.

Number 2, I’d start planning realistically. One of the primary culprits of survivorship bias is setting unrealistic expectations. To avoid this trap, ensure that your digitisation plans are grounded in a thorough and realistic assessment of your reinsurance organisation's unique capabilities, resources, and challenges.

Overall, digitisation is a dynamic and evolving process which, when done right, can provide a myriad of benefits for your reinsurance company and clients. Yet, while success stories may inspire and provide direction, they must not be taken as a guaranteed blueprint of your own company’s success. By resisting the mental pitfall that survivorship bias provides, you can develop a more comprehensive and effective digitisation strategy and reap the benefits your company deserves.

Need help planning and implementing a digitisation blueprint that DOES fit your organisation specifically? Contact me today and let’s talk about it.