STAY HEALTHY, PAY LESS. On the face of it, it’s a simple idea and one that has obvious attractions for anyone buying health insurance or life cover.
For the insurer there are real advantages too. Healthier policyholders are less likely to make claims. That means fewer payouts and higher returns on every policy sold, even when premiums are being discounted.
And there’s also a payoff for society. The more people stay well, the less strain there will be on increasingly overstretched healthcare systems and budgets.
This ‘shared value’ concept has been pioneered by Discovery, the South African financial services group, with its Vitality health and life insurance programme, which is helping the group expand rapidly across Asia, Europe and North America.
“Once the client leads a healthier life, the insurer saves money through better experience which creates value for the insurance company, enabling us to give additional benefits back to our clients,” says Barry Swartzberg, the group’s co-founder and chief executive of Discovery Partner Markets. “It becomes a sort of virtuous circle and ultimately benefits society.”
But if ‘shared value’ seems deceptively simple in concept, the reality of bringing it to market is anything but.
Supporting Discovery’s innovative business model is a sophisticated data gathering and analytics capability, a rigorous system of controlling and enhancing its intellectual property (IP) rights and a complex web of product and joint venture partnerships to help it adapt its model to markets as diverse as the U.S., China, Japan, the UK, Germany, Canada, Singapore and France.
THE TIME HAS COME
Yet it’s an idea that looks to have come of age at exactly the right time.
The health and life insurance markets are undergoing significant change. Understanding risk is increasingly about analysing individual behaviour. Technology is playing a much bigger role in monitoring health risks, as wearable devices proliferate.
There is also a clear social trend in many markets towards wellness, with individuals taking greater personal responsibility for staying healthy. And policyholders, especially younger ones, now look for clear evidence that the institutions and companies they buy from are a force for good in society.
All this calls for more sophisticated insurance products than the sort of traditional static forms of underwriting, where risks are evaluated on the signing of the policy, then left to lie.
How much better if policies could take account of the life choices people make, day by day, week by week?
And in a world where people are living longer but healthcare costs are climbing faster than earnings, this combination of demographic, health, economic, behavioural and technological change has created an environment ripe for disruption of the sort now being provided by Vitality.
FOCUS ON THE CLIENT
Barry makes it clear, though, that Vitality’s origins lie in an attempt to tackle an altogether different trend – an acute under-supply of doctors in South Africa.
When the group was formed in 1992 it was clear, he says, that the sort of managed care programmes on offer in markets with plenty of doctors and hospitals wouldn’t work in South Africa. Instead, it focused on creating a savings scheme to help patients manage their medical costs from year to year.
“Our focus was purely on the client and helping them manage their medical expenses,” he says. “We focused our entire business on the demand side initially, on managing and interacting with the patient.”
Then five years later the idea morphed. “We realised that once we had got this savings account system in place we needed to be able to help the person to undergo preventative care and to lead a healthier life.
“That’s how the idea of Vitality came about. It was only the germ of an idea but, since we launched it in 1997, it’s really been our differentiator.”
Within a few years it became clear that if Discovery could find ways to encourage clients to take part in an active wellness programme, it would soon be able to distinguish between different clients.
That, in turn, would allow Discovery to stratify the risks, to understand the client much better than its competitors and, from that, to offer clients better pricing on risk products.
“It means you can offer people dynamic underwriting throughout their lives,” he says.
A MAJOR TECHNOLOGY CHALLENGE
Finding a way to capture reliable health and lifestyle data is a major technology challenge, increasingly so as the client base grows.
It means clients have to agree to share large amounts of personal data – readings from a wearable device, details of preventative screenings, their diet, if they’ve taken part in a running or swimming event, or are attending a gym or cycling regularly.
“You’ve got to collect all that information in real time and put it into one central database and then encourage clients to improve their status within the programme by awarding points for the actions they are taking to stay well, and then, ultimately, to reward them.”
Those rewards take different forms. The most obvious is a reduced premium, but they are supplemented with offers on movies and holidays. And the group is now offering more active rewards to encourage a regular exercise regime – a free coffee or smoothie, perhaps, if a client keeps to a plan to exercise three times a week.
“It’s the whole idea of being in the moment, providing information and rewards more instantaneously,” says Barry. “The technology behind it is quite significant.”
A wearable device will collect a whole range of data during a run – heart rate, speed, distance – all of which needs to be collected each time.
“The amount of information you are collecting is just extraordinary. Add in data on preventative screenings, diet and more, and it becomes like a giant electronic patient record,” says Barry.
PARTNERING FOR GROWTH
Partnering with key consumer and wellness brands, as well as chosen insurers in key target markets, has been central to Discovery’s growth.
To enhance its offer to clients it has teamed up with brands such as Apple, Virgin Active and Weight Watchers. A client could receive an Apple watch to help them monitor their fitness regime. If they keep up the good work, the watch is free. If not, they pay a monthly charge for it.
Such perks have different appeal in different markets, Barry notes. Gym use is a big thing in the U.S. and the UK. In China, there is a culture of giving preventative screenings as a gift, and people tend to eschew gym-going in favour of using wearable devices and mobiles to monitor their exercise.
“We spend quite a bit of time in each market trying to understand how to flex the basic business model to meet different needs,” he says.
But to enter those markets in the first place, Discovery has also relied on partnerships and joint ventures, often swapping access to its IP in return for stakes in the venture.
This ‘capital light’ approach to M&A has seen it form ventures with Ping An Health, one of China’s largest private medical insurers, AIA in Asia Pacific, Generali in Europe and now Sumitomo Life in Japan. Discovery has also teamed up with John Hancock in the U.S. and Manulife in Canada, has just moved into Germany, will launch in France in 2017 and has other European markets, like Spain, on its radar.
“We are certainly looking around and interested in expanding the current offering,” says Barry. “And we’ve tried to make the model more adaptable – more of a shrink-wrapped package as opposed to a bespoke offering – so we can move from market to market.”
The offer, he admits, is more appealing in sophisticated life insurance markets, where you are trying to differentiate your products, than in an emerging market where people may be buying insurance for the first time. “But really it applies everywhere – I mean everyone wants to lead a healthier life.”
Growth brings a range of significant challenges, not least regulatory. The model is all about pricing risk dynamically, and that’s not something that regulators in certain markets have seen before. Fine-tuning and improving the technology is tricky too. But the greatest challenge of all is around IP.
“To continually add value to our partners, we have got to be at the forefront of developing and improving our IP – that is the single biggest challenge,” he says.
“People think that establishing and integrating the programme in each new market is easy. But we’ve had years of experience in how to do that effectively.”
The constant goal: to work with partners to continuously enhance the offering.
“The reason we’ve used this model is because we could never do it ourselves in these markets. To establish a life company takes a huge amount of capital, an existing brand and so many other things we do not have.
“The partnership model has worked well to date. We know our place. We are not trying to compete. We are the IP provider and we are trying to add value. It makes for a fascinating enterprise.”