“The world is less trusting of institutions than they were. The 2008 crisis had a deep impact. People are looking for companies that do good,” Gore told insurance brokers on Wednesday.
Speaking at the Insurance Institute of Gauteng’s (IIG) Broker Leadership Forum at Discovery’s Johannesburg headquarters, Gore said that much of risk is behavioural.
Many insurers still use fairly static pricing when it comes to pricing insurance policies: they rate your risk when you take the policy out and then increase your premium annually over the lifetime of your policy to account for inflation and the assumed ongoing deterioration in your health as you age (and your chances of dying – and claiming from your insurance policy – increase).
Discovery argues that the majority of risk is behavioural and so it incentivises people to behave better (e.g. eat healthily, exercise frequently and drive well) by giving them rewards for doing so. This reduces their risk and in turn makes the insurer more profitable, giving rise to what it describes as the “shared value model”.
This clever alignment of incentives, which has effectively become the Discovery Vitality model, is not something that Discovery had figured out at the beginning, Gore admits. “We were just a bunch of entrepreneurs trying to make our products sell,” he said.
But more than two decades later – and with a lot more knowledge of behavioural economics – it turns out that the model works and there is hard science to explain why.
The World Health Organisation (WHO), for example, finds that lifestyle choices, such as smoking, physical inactivity and unhealthy eating, drive non-communicable diseases (also known as lifestyle diseases) that cause the majority of deaths.
This shared value model, Gore argues, is what earned Discovery its spot on Fortune Magazine’s Change the World list: a list of 51 companies that Fortune finds “are doing well by doing good”. Discovery is the only insurer on the list and earns bragging rights along with Google, Facebook, SABMiller and the Grameen Bank.
Watch: Adrian Gore (CEO of Discover) on ethics, social impact and the VW scandal.
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