About
By understanding the causal link between financial behaviour and health risk through Discovery Bank’s Vitality Money program, Discovery is able to better segment life insurance risks than can be achieved through traditional pricing models. This allows clients of Discovery Bank, the world’s first behavioural bank, to get rewarded with upfront premium discounts of up to 15% as well as favourable ongoing adjustments to their Discovery life insurance premiums for continued healthy financial behaviour over time. This is made possible by Discovery’s ability to better segment risks within each socio-economic class through its unique understanding of the underlying link to health.
Innovation presentation
Traditionally, life insurers use limited information about a policyholder’s financial risk, primarily their level of income, as a means to segment their risk pool. In general, clients with high incomes pay lower premiums because they are thought to be better risks, and clients with lower incomes pay higher premiums over time because they are thought to be worse insurance risks. This is because of the known link, in general, between financial and physical health.
However, our research has shown that it is how well a person manages their finances (i.e. their financial health) that provides the link to physical health and thus can be used a proxy for health risk. Our research has shown that factors such as clients’ spend to earnings ratio and levels of short-term savings, risk protection (insurance), funds for emergencies, and retirement savings together form a more reliable measure of financial health. These insights are explored in our white paper on the Bank Integrator.
For the first time globally, through Discovery Bank – the world’s first behavioural bank and Vitality Money – a global first behaviour-based financial health programme, we now have access to real time, synthesised financial data that enables us to more accurately determine our clients’ financial health at policy inception, and the ability to improve a client’s financial health over the policy term.
Through the Bank Integrator we are therefore able to remove the inherent cross-subsidy that exists today between clients who have high incomes but exhibit poor financial management, and low-income clients who good financial management, resulting in better pricing of risk but also increasing fairness and equity for our clients.
Uniqueness of the project
Income and education level are the standard rating factors used by the insurance market as a proxy for an individual’s SE class. The unique innovation of the Bank Integrator is the ability to not only synthesize a broad, holistic range of relevant financial data and information into a single representative determination of an individual’s financial wellness (their Vitality Money status) and applying this metric to life insurance pricing for purposes of more accurate risk rating but also the ability to positively influence people’s financial decisions and behaviours to reduce their risk and create value that never previously existed.
Vitality Money measures a client’s financial health based on 5 key metrics: short term savings; retirement savings; risk protection; property management; and short-term debt management. These five metrics are responsible for eighty percent of defaults now or in the future. The Vitality Money status is calculated automatically for a client by integrating with multiple third parties such as credit bureaus and investment consolidators.
In addition to assessing a client’s financial behaviour, Vitality Money have set programmes and nudges to help clients improve their financial behaviour, and therefore improve their risk over time. In particular, the explicit mapping of financial behaviour, as opposed to circumstance, to the mortality, morbidity and persistency risk of the life insurer and thus of the individual risk posed by the policyholder unlocks value and pricing efficiencies that can be shared with the client.