Bending the q(x)’s: Where Actuarial and Behavioral Bending the q(x)’s: Where Actuarial and Behavioral Bending the q(x)’s: Where Actuarial and Behavioral Bending the q(x)’s: Where Actuarial and Behavioral Sciences Sciences Sciences Sciences meetmeetmeetmeetMonty Hilkowitz FIA

2

Recent Forces which have Impacted Insurance

3

Mortality rates are improving over time, for all age groups

NOTE: US rates for 2001–2009 are revised using updated intercensal population estimates and may differ from rates previously published; see Technical Notes.SOURCE: CDC/NCHS, National Vital Statistics System, Mortality.

4

People are living longer

Source: World Bank Data; The Kings’ Fund

50

55

60

65

70

75

80

85

1960

1961

1962

1963

1964

1965

1966

1967

1968

1969

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

1st world markets

Global Life expectancy, 1960 - 2012

2 decades5 years

Global

5

Increasing healthcare costs over time

US inflation 1978 = 100

Baumol cost disease: US Census Bureau data

Medical prices

6

Healthcare inflation is generally 1.2x to 1.8x general inflation

Consistent trend across markets

Ratio of medical to general inflation

1.58 1.62 1.65

1.21

1.82

1.40 1.39 1.50

1.30

Glo

bal

UK

Chin

a

India

Italy

Germ

any

Fra

nce

Russia

South

Afr

ica

General inflation threshold (General inflation threshold (General inflation threshold (General inflation threshold (1111))))

Source: Towers Watson 2014 Global Medical Trends

7

Commoditization ofLife Insurance

8

Impact of Behavior on Disease Burden and Mortality

9

From infectious diseases to non-communicable diseases

Close to 60% of premature deaths and 70% of the disease burden globally are from non-communicable diseases,

86% of deaths in Israel are from non-communicable diseases

WHO NCD publication 2015

10

From infectious diseases to non-communicable diseases

Oxford Health Alliance Model

55550000%%%%

4444

33333333 lifestyle lifestyle lifestyle lifestyle

behavioursbehavioursbehavioursbehaviours

4 4 4 4 chronic chronic chronic chronic conditionsconditionsconditionsconditions

55550000% of deaths % of deaths % of deaths % of deaths worldwideworldwideworldwideworldwide

Diabetes, heart & lung diseases, cancer

Physical inactivity, poor nutrition, smoking,

11

How it all began..............

12

Development of Vitality in 1997

Removing the upfront barriers to Removing the upfront barriers to Removing the upfront barriers to Removing the upfront barriers to getting active/healthygetting active/healthygetting active/healthygetting active/healthy

Attendance tracked by integration with Attendance tracked by integration with Attendance tracked by integration with Attendance tracked by integration with fitness club systemsfitness club systemsfitness club systemsfitness club systems

Free gym!

Discount maintained based on Discount maintained based on Discount maintained based on Discount maintained based on exercise engagementexercise engagementexercise engagementexercise engagement

Minimum number of gym visits in a year

to maintain discount

Marketing appeal and attracting healthier lives

Measure gym attendance on an individual Measure gym attendance on an individual Measure gym attendance on an individual Measure gym attendance on an individual basisbasisbasisbasis

Encourage people to get active and retain Encourage people to get active and retain Encourage people to get active and retain Encourage people to get active and retain healthy healthy healthy healthy behavioursbehavioursbehavioursbehaviours

13

Vitality Vitality Vitality Vitality systemsystemsystemsystem

Clinical measure of member engagementOne year cycleExercise Eating healthy foodsRegular Health assessment Clinical Impact of each activityPoints confer status

14

Today, it has evolved into the most sophisticated wellness program globally

1. Online assessments

2000 points

Vitality Age

2500 points

Mental Wellbeing

Assessment

1000 points

Online Fitness

Assessment

Complete

online health

assessments on

discovery.co.za

2500 points (set up)

500 points (set up)

Family History Tool

15

Today, it has evolved into the most sophisticated wellness program globally

2. Vitality Health Check

Do a Vitality

Health CheckWeight assessment

Boosted to 3000

points

Blood glucose

Boosted to 3000

points

Blood pressure

Boosted to 3000

points

Cholesterol

Boosted to 3000

points

16

Today, it has evolved into the most sophisticated wellness program globally

3. Other health checks

Pap smear

2500 points

Mammogram

2500 points

Colonoscopy

2500 points

Glaucoma screening

2500 points

HIV

test

5000 pointsDo further

health checks

17

Today, it has evolved into the most sophisticated wellness program globally

2. Nutrition

Nutrition: 20 points per healthy item

3. Physical activity

Exercise: 100 points (Gym visit) to 3000 points (Race)

18

Success led to the development of the Vitality Status

PROGRAMME STRUCTURE POINTS STRUCTURE

Note: For each additional member aged 18 years and older, add: 10 000 (Bronze), 20 000 (Silver),

30 000 (Gold).

19

Success led to the development of the Vitality Status

Receive points for doing healthy activities

Going for a health screening

Going to gym

Not smoking

Get a Vitality Status Unlocks discounts based on your status

Example: Flights

20

Vitality member journey today

1. Know your health 2. Improve your health 3. Get rewarded

43Chronological

age 40

A meta-analysis of over 5000 published studies (75m life years of data from recognized developed-world studies)

Vitality Age Begin your wellness pathway

Disease management

Smoking cessation

Mental health

Nutrition

Preventive care

Physical activity

1.5

1

0.5

Difference

Vitality Status Rewards

Example: Flight discountsExample: Flight discountsExample: Flight discountsExample: Flight discounts

21

2001 2015

Success in driving engagement: Exercise

Gym visits

70707070,,,,000000000000>25m visits a year

gym workouts every day

22

22 Boeing 737

planes full of Vitality members enjoying discounted flights every day

23

HealthyFood: Making healthier alternatives easier

1. Clients activate the benefit online

10%

Get

cash back

Complete a

Vitality Health Check

25%

Get

cash back

24

HealthyFood: Making healthier alternatives easier

2. Select from a wide range of healthy foods

25

Success in driving engagement: healthy nutrition

HealthyFood spend

Healthy Food Other food

2009 2015

32323232,,,,000000000000 HealthyFood baskets purchased every day

26

Example of behavior change: HealthyFood

Increase in HealthyFoodshare of total food basket

Those with 10% cash back

Those with 25% cash back

Month before activation/months after activationMonth before activation/months after activationMonth before activation/months after activationMonth before activation/months after activation

27

30,000,000life years of health and mortality data collected

28

Codifying morbidity curves

Healthcare costs: Total

30 40 50 60 70

Rela

tive c

laim

s e

xp

eri

en

ce

Age

Blue Bronze Silver and Gold

1/3 lower

29

Codifying curves for specific chronic conditions

15 25 35 35 55 65 75 85

Rela

tive c

laim

s e

xp

eri

en

ce

Age Band

Blue Bronze and Silver Gold

Healthcare costs: Cancer

20% lower

30

31

Validation of impact on clients

Study Study Study Study 1111: Non: Non: Non: Non----chronic conditionschronic conditionschronic conditionschronic conditionsHospital costs Hospital costs Hospital costs Hospital costs for engaged Vitality members are for engaged Vitality members are for engaged Vitality members are for engaged Vitality members are 10101010% % % % ––––40404040% lower than non% lower than non% lower than non% lower than non----engaged members for nonengaged members for nonengaged members for nonengaged members for non----chronic chronic chronic chronic conditionsconditionsconditionsconditions

Study Study Study Study 2222: Chronic conditions: Chronic conditions: Chronic conditions: Chronic conditionsHospital costs Hospital costs Hospital costs Hospital costs for engaged Vitality members are for engaged Vitality members are for engaged Vitality members are for engaged Vitality members are 10101010% % % % ––––30303030% lower than non% lower than non% lower than non% lower than non----engaged members for chronic engaged members for chronic engaged members for chronic engaged members for chronic conditionsconditionsconditionsconditions

Study Study Study Study 3333: Longitudinal fitness study: Longitudinal fitness study: Longitudinal fitness study: Longitudinal fitness studyAdmission rates are Admission rates are Admission rates are Admission rates are 10101010% lower, length of stay in hospital % lower, length of stay in hospital % lower, length of stay in hospital % lower, length of stay in hospital 25252525% lower and % lower and % lower and % lower and in combination, hospital in combination, hospital in combination, hospital in combination, hospital cost per patient cost per patient cost per patient cost per patient 14141414% lower for highly engaged Vitality members relative to % lower for highly engaged Vitality members relative to % lower for highly engaged Vitality members relative to % lower for highly engaged Vitality members relative to members not registered on Vitalitymembers not registered on Vitalitymembers not registered on Vitalitymembers not registered on Vitality

32

Discovery’s Shared Value insurance cycle

32

Members engage in their health &

wellness

01

Members change their behavior

02

Members achieve improved health

outcomes

03

Insurers/employers experience better

claims performance & greater savings

04

Insurers channel actuarial profit into

incentives

05

Members are rewarded for their

improvements

06

Economic value

generated

Economic value

shared

Healthier members stay & join

07Society benefits from

improved health & productivity

33

Funding of benefits

Member contribution Discounts and funding frompartners

Actuarial surplus Incentives and lowerpremiums

Profit to insurer

±$10 per member per month

Access to wellness partners and network

Indicative of commitment to better health

Better healthcare experience

Better mortality

Better lapses

34

Traditional insurance pricing models are not optimal

Level premium

Timeline

35

Blue Bronze Silver Gold

Led to the development of dynamic pricing

Vitality Integrated Insurance ModelExample: Whole of life Insurance

Dynamic pricing and behavior changeDynamic pricing and behavior changeDynamic pricing and behavior changeDynamic pricing and behavior change

Significant Significant Significant Significant upfront upfront upfront upfront premium premium premium premium discounts of up discounts of up discounts of up discounts of up to to to to 20202020% creates % creates % creates % creates positive positive positive positive selectionselectionselectionselection

Market premiumMarket premiumMarket premiumMarket premium

1111

2222

Accurate Accurate Accurate Accurate pricing leads pricing leads pricing leads pricing leads to selective to selective to selective to selective lapses of lapses of lapses of lapses of unhealthy unhealthy unhealthy unhealthy lives (to lives (to lives (to lives (to other other other other insurers etc.)insurers etc.)insurers etc.)insurers etc.)

3333

36

Impact of the dynamic pricing model

Dynamic pricing modelDynamic pricing modelDynamic pricing modelDynamic pricing modelBetter health selectionBetter health selectionBetter health selectionBetter health selection

Non-Integrated Integrated

21212121% % % % better claims

experience for integrated members

1111

Members who stay

had a 2222x x x x better better better better mortality mortality mortality mortality

experienceexperienceexperienceexperience

In-force All Lapses

Claims experience Mortality experience

3333Selective Selective Selective Selective lapsationlapsationlapsationlapsation

37

Vitality Active Rewards with Apple Watch

Achieve your fitness goal

Get active Get rewarded

Get rewarded every week with a free coffee from

Starbucks

Receive an Apple Watch

Get your Apple Watch for free by

achieving your monthly goals

38

Rationale for Vitality Active Rewards with Apple Watch

Theory of loss aversion and Utility

UTILITY

LOSSES GAINS

Benefit design

Get Active Achieve your goals Get Rewarded

Watch repayments linked to engagement

u

-2u

39

Apple Watch encourages 2x average weekly activity levels for device users after activating active rewards

4.00

3.50

3.00

2.50

2.00

1.50

1.00

0.50

-11%

+66%

+96%

Not enrolled Active Rewards With Apple Watch

Average level of physical activity before and after the launch of the benefit

Pre Active Rewards Physical Days per Week Post AR Physical Days per Week

40

Poor and average Good and excellent

Vitalitydrive in motor insurance

34343434%%%%

Better drivers have fewer accidents

DISCOVERY INSURE DRIVERS CURRENTLY HAVE DISCOVERY INSURE DRIVERS CURRENTLY HAVE DISCOVERY INSURE DRIVERS CURRENTLY HAVE DISCOVERY INSURE DRIVERS CURRENTLY HAVE 1111////3 3 3 3 OF THE SOUTH AFRICAN ROAD FATALITY RATEOF THE SOUTH AFRICAN ROAD FATALITY RATEOF THE SOUTH AFRICAN ROAD FATALITY RATEOF THE SOUTH AFRICAN ROAD FATALITY RATE

1111Reward good driving behaviour with up to 50% back on fuel based on how you drive

2222Use technology to provide regular feedback and more detailed analytics

OVER 100 MILLION KILOMETRES OF DRIVING DATA COLLECTED.

3333

Telematics measures driving behaviour

41

United States of AmericaCanada

GermanyFrance

ChinaSouth AfricaUnited Kingdom

SingaporeAustralia

Hong KongThailand

MalaysiaPhilippines

South Korea

NETWORK

42

Recognised globally

Fortune’sChange the World list

Harvard Business School Michael Porter

McKinsey Quarterly International media

Bending the q(x)’s: Where Actuarial and Behavioral Sciences meetMonty Hilkowitz FIA