High stakes for Discovery Life as Vitality rewards change

Discovery’s life insurance business says the migration to the new Vitality Miles system will not affect premium discounts that its customers have become accustomed to.

While many Discovery clients were upset by the Vitality currency, saying it takes more miles to get the same rewards than previously, Discovery Life CEO, Hylton Kallner, says the only aspect that has changed is the weekly rewards.

But even there, said Kallner, the only change is that customers are no longer restricted to getting a smoothie or coffee, but they can redeem their rewards in various ways, including cash.

“The rewards points system had quite a lot of limitations. You could only use them for specific vouchers and they only lasted 12 week. The new system is trying to get our customers to put together all points they earn from any product into one currency. But it’s not changing the discounts,” said Kallner.

Why Vitality can’t get it wrong

The Discovery Life business heavily integrated with Vitality with over 80% of its customers also members of the reward programme. Discovery says that the more customers use Vitality, the lower their tendency to lapse their policies and they also claim less because of good health. For instance, the group’s latest integrated report showed that when people get to the highest Vitality status, chances of them cancelling their life cover drops by 70%.

A disruption in the functioning of Vitality puts the whole Discovery “shared-value model” at risk. This is one of the reasons why the group took offence with competitor, Liberty using people’s Vitality statuses to reward them under its own Wellness Bonus benefit. Discovery sued Liberty, alleging infringement of its intellectual property rights. The case is yet to be heard by the Johannesburg High Court.

“The Vitality system has an impact everywhere, from bringing down claims, improving persistency and generally on the health of our population,” said Kallner.

He attributed Discovery Life’s ability to double its share of new insurance sales in the past decade mainly to the Vitality integration. The insurer has grown its market share of new life business from 25% in 2016 to 31% at the end of September 2019.

“The two [life insurance business growth and Vitality] are complementary. You can’t de-link them,” said Kallner, adding that Vitality had become the engine of every business in the group.

Competing with new fintech disruptors

Kallner said changes Vitality is making, and the life businesses’ integration with the bank, were in fact aimed at helping Discovery Life gain even more market share. With the bank integration, Discovery Life insurer is moving away from just using people’s health results and their incomes to calculate their risk profile, and thus the premiums they pay beyond their health and income level to price their premiums.

Fintech players, like Naked Insurance, have used the same model to fundamentally change how motor insurance work. Life insurance is being disrupted in similar fashion by the likes of Simply and Sanlam’s tech venture, IndieFin.

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