Thriving Through Shared-Value

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 healthcare system | challenges

High burden of disease Shortage of doctors Ranking of health care systems

Age standardized YLL rate Doctors per 10 000 people Australia (per 100 000) 60 000 Switzerland 43 SA Private Sector France 50 000 36 UK 35 Germany 40 000 30 Singapore 27 Brazil 24 US 30 000 Hong Kong 18 South Korea 20 000 14 Russia China SA Public Sector 10 000 7 6 Turkey Kenya - Morocco

South Africa USA Australia

SA US

UK 0 20 40 60 80 100

India

Brazil

China

Russia

France

Australia Germany

Source: Global Burden of Disease Years of Life Lost (YLL) 3 The cost disease

Medical inflation outstrips wage inflation Consistent across all countries

Health care cost inflation above CPI, % 1,250 College tuition

9 8 1,000 8 7 Medical 750 6 5 5 care 5 5 5 5 500 4 3 3 3 Consumer prices 3

250 Average wage

100

UAE

Italy

Brazil India

0 Chile

Russia

China France

1978 90 2000 12 Mexico

Australia

Canada

Malaysia Singapore

3 Healthcare-wellness paradox

Hyperbolic discounting Over-optimism

% of members rating their health “good”

65% 60% 61% 52% Benefits are Benefits are 49% immediate, hidden, price is price is hidden immediate 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

Cancer, diabetes, heart 60 & lung diseases

Oxford Health Alliance 4-4-60 model PURPOSE VALUES 1992 AMBITION

1. Great people Make people 2. Liberating the best in our people Best health healthier and 3. Intellectual leadership enhance and 4. Innovation and insurer in South optimism Africa protect their lives 5. Business astuteness and prudence 6. Dazzle clients 7. Drive, tenacity and urgency 8. Integrity, honesty and fairness Shared-Value Members Improved health, better value through improved price and benefits

Society Insurer Healthier society Lower claims Improved productivity Higher margins Reduced healthcare burden Positive selection and lower lapses Success led to the development of the Vitality Status

Receive points for doing Get a Vitality status Unlocks discounts based on healthy activities 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 Engagement based Personal pathways key risk factors rewards

Personalised experience Wearable technology Electronic health record

Lifestyle and Health and insurance Unique insights Clinical data and algorithms behavioural data data

9 Discovery Life’s dynamic pricing model

Traditional underwriting is Dynamic pricing premium vulnerable profiles Codified mortality curves

Blue Bronze Silver Gold Bent q(x) Premium Market premium Underwrite at inception A

Flat market premium D B

C rates Mortality

A Competitive price points Large initial discounts to market prices Time B Selection Attract healthier lives • Static underwriting 30 to 35 to 40 to 45 to 50 to 55 to 60 to 65 to • Premiums do not match risk C Behaviour change 34 39 44 49 54 59 64 69 • Transactional relationship with the Rewards to motivate behaviour change customer None Blue Bronze D Positive selective lapses Silver Gold Better matching of price to risk 10 Significant member engagement

Exercise HealthyFood spend Discounted flights

70,000 gym 1 m wearable device 35,000 HealthyFood baskets 26 planes of members workouts activities tracked purchased every day at discounted prices a day every day every day

>300m activities ±$600m spent on >1m discounted incentivised and healthy items to flights a year tracked a year date Healthy Food Other food

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%

23% 26% 16%

Buy more Undertake Undergo Do more online Uplift in overall HealthyFood preventative screenings assessments engagement measures

Source: Vitality Points data 12 Jun08 Lapse experience relative Lapse toexperience Blue - Blue Dec13 DSY Life experience lapse Selection Selection effect and behavioural change Case study : Discovery Life :Discovery study Case Bronze Silver - 67% Diamond Gold & Mortality experience Mortality relative toexperience industry Actual = Expected (Standard life), risk adjusted risk life), Expected (Standard= Actual

Source: Global Source: reinsurerGlobal Other SA insurers

DL Book - 20% Blue

Bronze

Silver

Gold

Diamond Cancer prevalence Chronic conditions Health claims cost 13% 13% lower 19% 19% lower 27% 27% lower Integrated policies Integrated policies Integrated policies Non-integrated Non-integrated Non-integrated policies policies policies higher than that of a VNB per integrated integrated policy is higher than that of VNB margin of an non non 13.6x 3.2x policy is - - policy policy integrated integrated 2 1 14 Physical activity has a profound effect on mortality & morbidity

Probability of hospital admissions per Health outcomes independently verified number of additional gym visits per week

Study 1: Non-chronic conditions Risk-adjusted hospital costs for engaged Vitality -3% -7% -10% -13% 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

Study 3: Longitudinal fitness study Admission rates are 10% lower, length of stay in hospital 25% lower and hospital cost per patient Base 1+ every 2 1+ per week 3+ every 2 2+ per week 14% lower for highly engaged Vitality members weeks weeks 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

>90% of accidents are as a Loss ratio and lapse rates Behaviour change result of poor driving behaviour

Loss ratio by status Driving score over time for Discovery 80% of people think they are good Insure clients drivers, but only 30% are

-60% +12% 127 81%

+15% 115 Blue Bronze Silver Gold 41% 33% Lapse rates by driving behaviour 100 26% 17% 2%

Poor Moderate Good or Excellent

Perception Actual experience

Bad drivers Good drivers <6 months Longer term

16 Discovery Card experience

Members with Discovery Card Card profitability improves as engagement in Vitality increases are highly engaged in Vitality

Percentage of members moderate Defaults by Vitality Status Spend by Vitality Status Lapses by Vitality Status – highly engaged in Vitality

60%

50%

40%

30%

20%

10%

2008 2009 2010 2011 2012 2013

Blue Blue

% Card base engaged Blue

Silver

Gold

Silver

Gold

Silver

Gold

Bronze Bronze

% Vitality base engaged Bronze

Diamond

Diamond Diamond

17 Science & business model codified for adjacencies

Health Savings & General Corporate Life insurance Credit card insurance investments insurance wellness

Longevity p(x) and Mortality & morbidity q(x) Morbidity q(x) Mortality q(x) Accident q(x) Default q(x) lapse q(x) Productivity f(q(x))

‘Bent q(x)’

Health related Incentivised wellness Dynamic Incentivised Incentivised Guaranteed investment pricing driving behaviour behaviour improvement in enhancements medical inflation, healthcare costs and Vitality Age Model

18 Thriving through shared-value

Andrew Rayner

Discovery Limited