Thriving through shared-value Andrew Rayner Discovery Limited This presentation has been prepared for the Actuaries Institute 2018 Financial Services Forum. The Institute Council wishes it to be understood that opinions put forward herein are not necessarily those of the Institute and the Council is not responsible for those opinions.
SA Russia Brazil China India France Germany US UK Australia SA healthcare system challenges High burden of disease Shortage of doctors Ranking of health care systems 60 000 50 000 Age standardized YLL rate (per 100 000) Doctors per 10 000 people 43 35 36 Australia Switzerland SA Private Sector France UK Germany 40 000 30 000 20 000 18 14 24 27 30 Singapore Brazil US Hong Kong South Korea Russia China 10 000 6 7 SA Public Sector Turkey - South Africa USA Australia Kenya Morocco 0 20 40 60 80 100 Source: Global Burden of Disease Years of Life Lost (YLL) 3
US Canada UAE Malaysia Mexico Brazil France Australia UK Singapore Italy China Chile Russia SA India The cost disease Medical inflation outstrips wage inflation Consistent across all countries College tuition 1,250 Health care cost inflation above CPI, % 1,000 9 8 8 Medical care Consumer prices 750 500 7 6 5 5 5 5 5 5 4 3 3 3 3 Average wage 250 100 0 1978 90 2000 12 3
Healthcare-wellness paradox Hyperbolic discounting Over-optimism % of members rating their health good Benefits are immediate, price is hidden Benefits are hidden, price is immediate 49% 60% 65% 61% 52% HEALTHCARE WELLNESS 1 2 3 4 5 Number of chronic conditions
The nature of risk is behavioural 4 Physical inactivity, poor nutrition, smoking, alcohol 60% of all deaths worldwide 4 60 Cancer, diabetes, heart & lung diseases Oxford Health Alliance 4-4-60 model
PURPOSE VALUES 1992 AMBITION Make people healthier and enhance and protect their lives 1. Great people 2. Liberating the best in our people 3. Intellectual leadership 4. Innovation and optimism 5. Business astuteness and prudence 6. Dazzle clients 7. Drive, tenacity and urgency 8. Integrity, honesty and fairness Best health insurer in South Africa
Shared-Value Members Improved health, better value through improved price and benefits Society Healthier society Improved productivity Reduced healthcare burden Insurer Lower claims Higher margins Positive selection and lower lapses
Success led to the development of the Vitality Status Receive points for doing healthy activities Get a Vitality status Unlocks discounts based on your status Going for a health screening Example: Flights Going to gym Not smoking 8
Vitality model Know Your Health Improve Your Health Get rewarded AGE Determination of key risk factors Personal pathways Engagement based rewards Personalised experience Wearable technology Electronic health record Unique insights Clinical data and algorithms Lifestyle and behavioural data Health and insurance data 9
Mortality rates Discovery Life s dynamic pricing model Traditional underwriting is vulnerable Dynamic pricing premium profiles Codified mortality curves Premium Underwrite at inception Blue Bronze Silver Gold Market premium A Bent q(x) Flat market premium D B C Time Static underwriting Premiums do not match risk Transactional relationship with the customer A B C D Competitive price points Large initial discounts to market prices Selection Attract healthier lives Behaviour change Rewards to motivate behaviour change Positive selective lapses Better matching of price to risk 30 to 34 35 to 39 40 to 44 45 to 49 50 to 54 55 to 59 60 to 64 65 to 69 None Blue Bronze Silver Gold 10
Significant member engagement Exercise HealthyFood spend Discounted flights 70,000 gym workouts every day 1 m wearable device activities tracked every day 35,000 HealthyFood baskets purchased every day 26 planes of members at discounted prices a day >300m activities incentivised and tracked a year ±$600m spent on healthy items to date Healthy Food Other food >1m discounted flights a year 2009 2016 2009 2016 2010 2016 115
Physical activity triggers a healthy lifestyle Improvement in health participation after becoming physically active 79% Did not exercise 43% 16% 23% 26% Buy more HealthyFood Undertake preventative measures Undergo screenings Do more online assessments Uplift in overall engagement Source: Vitality Points data 12
Other SA insurers DL Book Blue Bronze Silver Gold Diamond Case study : Discovery Life Selection effect and behavioural change Lapse experience relative to Blue -67% Mortality experience relative to industry Actual = Expected (Standard life), risk adjusted -20% Health claims cost 13% lower Integrated policies Chronic conditions 27% lower Non-integrated policies VNB margin of an integrated policy is 3.2x higher than that of non-integrated policy 1 Blue Bronze Silver Gold & Diamond Integrated policies Cancer prevalence 19% lower Integrated policies Non-integrated policies Non-integrated policies VNB per integrated policy is 13.6x higher than that of a non-integrated policy 2 Jun08-Dec13 DSY Life lapse experience Source: Global reinsurer 14
Physical activity has a profound effect on mortality & morbidity Probability of hospital admissions per number of additional gym visits per week -3% -7% -10% -13% Health outcomes independently verified Study 1: Non-chronic conditions Risk-adjusted hospital costs for engaged Vitality members are 10% 40% lower than non-engaged members for non-chronic conditions Study 2: Chronic conditions Risk-adjusted hospital costs for engaged Vitality members are 10% 30% lower than non-engaged members for chronic conditions Base 1+ every 2 weeks 1+ per week 3+ every 2 weeks 2+ per week Study 3: Longitudinal fitness study Admission rates are 10% lower, length of stay in hospital 25% lower and hospital cost per patient 14% lower for highly engaged Vitality members relative to members not registered on Vitality Source: Participation in Fitness-Related Activities of an Incentive-Based Health Promotion Program and Hospital Costs: A Retrospective Longitudinal Study 15
Motor insurance : impact of the model is significant Loss ratio and lapse rates Behaviour change >90% of accidents are as a result of poor driving behaviour Loss ratio by status -60% Driving score over time for Discovery Insure clients +12% 127 80% of people think they are good drivers, but only 30% are 81% Blue Bronze Silver Gold +15% 115 Lapse rates by driving behaviour 100 2% 26% 17% 41% 33% Poor Moderate Good or Excellent Perception Actual experience Bad drivers Good drivers <6 months Longer term 16
Blue Bronze Silver Gold Diamond Blue Bronze Silver Gold Diamond Blue Bronze Silver Gold Diamond Discovery Card experience Members with Discovery Card are highly engaged in Vitality Card profitability improves as engagement in Vitality increases Percentage of members moderate highly engaged in Vitality Defaults by Vitality Status Spend by Vitality Status Lapses by Vitality Status 60% 50% 40% 30% 20% 10% 0% 2008 2009 2010 2011 2012 2013 % Card base engaged % Vitality base engaged 17
Science & business model codified for adjacencies Health insurance Life insurance Savings & investments General insurance Credit card Corporate wellness Morbidity q(x) Mortality q(x) Longevity p(x) and lapse q(x) Accident q(x) Default q(x) Mortality & morbidity q(x) Productivity f(q(x)) Bent q(x) Model Incentivised wellness Dynamic pricing Health related investment enhancements Incentivised driving behaviour Incentivised behaviour Guaranteed improvement in medical inflation, healthcare costs and Vitality Age 18
Thriving through shared-value Andrew Rayner Discovery Limited This presentation has been prepared for the Actuaries Institute 2018 Financial Services Forum. The Institute Council wishes it to be understood that opinions put forward herein are not necessarily those of the Institute and the Council is not responsible for those opinions.