Vitality is trying to turn insurance on its head through the use of wearables, user data and attractive rewards for healthy customers.
It’s fair to say that most insurers are not exactly known for their technical innovation or cutting-edge business models. And while it’s true to say that there have been some notable exceptions, like Direct Line with the first phone-based insurance in the 1990s and the rise of the aggregators like GoCompare and CompareTheMarket more recently, the market today is largely still based on business processes first introduced two centuries ago.
Given this, and the risk-adverse nature of the industry, it could be argued that the word ‘innovation’ is treated with some suspicion. Insurance models continually lean on underwriters and actuaries to define risk, and the prices, with brokers responsible for closing the deals.
It’s a well-worn model, but one which is now struggling in light of ever-tight margins, market commoditization and increasing customer mistrust. After all, who would ever confess to liking their insurer?
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Vitality revitalizing insurance models?
Some companies, though, have seen the insurance market as an opportunity to embrace innovation – and new business. Newcomers like Google’s Oscar, Lexis Nexis, Brolly and Bought By Many are reshaping risk management and policy pricing in this new InsurTech age.
In that mix, you could also include the name of Vitality – the UK-based company specialising in private medical insurance. A subsidiary of South Africa-based Discovery Limited, the firm gained 680,000 customers in the UK by 2014 and today counts superstars like Jessica Ennis-Hill and Jonny Wilkinson among its ambassadors.
At its most basic, the firm’s business model revolves around incentivizing customers to be healthier through rewards, meaning that they are subsequently less likely to make a claim.
The firm vets customers before they can take out an insurance policy, and rewards them for working out and being healthy with drinks at Starbucks and tickets at the cinema amongst other things. By tracking the wearables worn by these users, the insurer can track their progress.
“Our core model is to make members healthier via the use of incentives, network tools and wellness tools,” commercial director Nick Read tells Internet of Business.
“We, as an insurer, get the value because we get better understanding of risk across the portfolio, but also society benefits as there’s less dependency on health system and the state. It also helps increase physiological age and productivity.”
Users are required to use a wearable device, with computer algorithms determining if Vitality customers need to change their weight up or down, stop eating too much or stop smoking. The user then put on a ‘pathway’ to a healthier lifestyle and they earn points each time they complete a workout.
Read admits this wouldn’t be possible without the carrot approach.
“What’s absolutely crucial to our model is the use of rewards to stimulate positive change,” he said, mentioning that these entail everything from discounted bicycles at Evans and free health checks at Lloyds to nutrition goods at Sainsbury’s, Weightwatchers or even enrollment on courses to stop smoking.
This health check isn’t just physical but on mental wellbeing too – with incentives for visits to relaxation spas. Vitality also provides free health checks for all members and guidance online.
Wearables and Vitality Rewards
But Vitality doesn’t just rely solely on benefits, but also the competitive edge that most humans secretly have.
Vitality Rewards is based on Vitality Status, and users get points from physical exertion, whether that’s 5,000 steps in a day, a trip to the gym or a 10K run. This leads to gold, silver and platinum plans, with the top benefits including discounts on BA and Eurostar travel.
User activity is tracked through Vitality’s Moves smartphone app (Android and iOS), with Vitality’s own figures suggesting that users lead a healthier lifestyle and are even less often absent from work.
“What was absolutely transformative for us in the UK is Vitality Rewards,” said Read, detailing how data can be pulled from various wearables, from Polar and FitBug to Garmin and Fitbit. The firm even has a site for customers to find the right product for them, and also offers discounts on all of the above wearables.
It’s interesting that Read mentions customers as ‘investments’ – a term perhaps unlikely to be heard at other insurers – and he says that the sector must move away from traditional interactions with customers.
“Insurance is historically run by actuaries…. But what we’re seeing now is by behaviour economists. There’s a growing science around how the industry can create programmes to stimulate [user] engagements.
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Data is king in the wearable world
Read believes that its “inevitable” insurers will continue to look at wearables, with others like AXA PPP Healthcare doing much the same. Ultimately, with insurance historically data-led, he believes that data from wearables – and going forward the Internet of Things – gives insurers a chance to change.
“I think data is king and the more data we can get in terms of what members are doing, we’re going to be driving down that level of risk.”
This use of data, however, isn’t always straightforward. I put it to Nick that this new age of digital insurance raises questions, not only on the role of the insurer but also on data ownership and exclusivity. After all, should insurers be allowed to discriminate against those deemed less healthy, and more of a risk? And when exactly do they intervene?
And while he admits that Vitality is selective on who is – and who isn’t – eligible to be a customer, he is keen to stress that all data collected “completely anonymized, extremely confidential”. Instead, he points to demand; end-users want to do this. He says this is a pivotal point in a market where insurers typically shy away from any customer interactions.
“Most insurers don’t really want to talk to you, as it might trigger a claim or a price review.”
An analyst’s view
Craig Beattie, senior analyst at Celent, tells IoB that other insurers will have to follow suit, and change their business models.
“As we put it here at Celent, we’re seeing a shift from risk indemnification to risk mitigation and from claims to concierge services.
“This is precisely what Vitality is doing in the health insurance industry globally. The product seeks to help incentivise people and given people the tools to manage and improve their own health while at the same time paying for the insurance product.
“From an underwriting point of view this doesn’t just have the potential to improve a book of business but it also serves to attract customers already interested in a healthier life style – a win-win.
“Similar experiments and models are at work in the motor telematics line of business, with the promise of a shake in property insurance also coming with new technologies and new products.”
Nick Read and Craig Beattie are speaking at the Internet of Insurance, which takes place at the M by Montcalm, London on the 13-14 June 2016.
Click here to join senior speakers and delegates from AXA, Allianz, Aviva, Co-operative Insurance, Google, Legal & General, Marsh, Munich Re, and more.