What makes prevention today different from past efforts (e.g., fire prevention dating back centuries) is how it can be done. First, a wide range of new technologies and data analytics allow tracking who and what is changing, making it possible to establish individualized targets, remedies, and incentives. Second, a systems approach helps companies go beyond single interventions to engage the entire insurance value chain — including local businesses, communities, and government — in the pursuit of these prevention gains. Third, with measurement linking risk-reduction milestones to improved business results, customers can be rewarded dynamically, with behavior-based pricing that encourages positive behaviors and leads to a virtuous shared-value cycle between risk reduction and profit.
Consider the Vitality program developed by the South African insurance company Discovery over 25 years ago. Vitality provides people with incentives to improve their health through gym memberships, discounts on healthy foods, and other awards based on the achievement of personal health goals, and then rewards members dynamically through lowered annual premiums, free travel, and perks.
The result is a structural transformation of insurance. Additional economic value is unlocked, creating benefits for the member (more years of healthy life), the insurer (reduced claims over time), and society (healthier, more productive citizens). Vitality members generate up to 30% lower hospitalization costs and live from 13 to 21 years longer than the rest of the insured population (up to 41 years longer than comparable uninsured populations).
In addition to using this shared-value approach in its wholly owned South African and UK businesses, Discovery has established a global network of insurance partners that employ it, including John Hancock Financial (U.S.), Manulife (Canada), Generali (Europe), AIA (Asia Pacific), and Ping An (China). Altogether, the model is employed in 15 markets, impacting over 5.5 million people.
Other companies are applying similar models to other types of insurance. One example is IAG’s comprehensive program in Australia to prevent car accidents. It is working with car manufacturers to improve vehicle security and safety standards and is offering customers reduced premiums for selecting safety features such as automatic emergency braking. IAG also uses its extensive geomapped motor vehicle claims data to identify dangerous crash zones, alerts customers when they are near these dangerous zones, and engages local governments to fix related infrastructure deficits. Pilot projects show that a single improved highway ramp can save lives and save IAG approximately $600,000 (AUD) per year.
Another example is Redwoods Group’s program in the United States to help its 400 youth-serving customers protect children. It invests $3 million per year in consulting services that reduced drowning deaths and reported instances of child abuse by 85% and 65%, respectively, in less than 10 years. The reduction in drowning deaths alone saves the company $6 million in insurance claims per year. Redwoods underwrites $43 million in premiums per year in a market previously considered uninsurable and enjoys a 95% customer retention rate.
Such examples are featured in FSG’s new research on shared value in the insurance sector, along with efforts by sector leaders to reach more underserved customers with insurance and better leverage their asset management side to create the context for prevention. Insurers that incorporate society’s needs into their strategies, building on existing and new capabilities, are finding lasting competitive advantage. Both today and in the future, creating shared value is an imperative for insurers that aim to grow profitably and sincerely want to provide risk protection and prevention to customers.
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