As Vitality unveils results for the year ending June 2015, regular HI Daily contributor Tony Levene (pictured) gathers intermediary reaction and assesses the health and life insurance provider’s performance since its rebrand last November.
“Cash plans are poor value,” according to Neville Koopowitz, the VitalityHealth CEO, confirming that the South African-owned private medical insurance (PMI) provider has no intention to get involved in that market. And neither has Vitality plans to acquire more direct rivals.
“But there are opportunities for organic growth with new products in a market where few make the effort. We’ve found that innovation pays in an innovation-lite industry,” he adds.
And that is reflected in the numbers. Since Discovery bought Prudential’s outstanding 25% stake in the PMI and protection specialist last autumn, profits at VitalityHealth and VitalityLife increased 16% to £42.8m. Overall premiums rose 11% to £533m while both companies boast claims and retention figures ahead of industry averages.
There was, however, a £2m new business sales reduction to £105m, ascribed to opting out of a group market protection price war.
With a new advertising campaign due to start this month – featuring Vitality’s iconic sausage dog Stanley – the group hopes to build on successful marketing created by sports “ambassadors”, Jessica Ennis-Hill, Jonny Wilkinson, and Seb Coe.
But it’s not just publicity. Vitality believes success – in an otherwise uninspiring market – comes from understanding policyholders expect an increasing social response, from an ability to modify customer behaviour, and understanding the role of technology as an enabler, both in tracking risk, and rewarding behavioural change.
“We’ve set out to be different,” says Herschel Mayers, the VitalityLife CEO. “Our members [a word that reflects more of a two-way transaction] get benefits and rewards for adopting a healthy life-style. It’s a ‘shared value model’ which is both socially and actuarially sound.”
Health insurance innovation includes VitalityGP, a new move to bring primary care into the PMI orbit.
“The industry is counter-intuitive,” says Koopowitz. “People buy PMI to avoid the NHS but most have to go to an NHS GP before they can access private care. And that can mean waiting.”
VitalityGP is new – there were 1,600 consultations in the first ten weeks – but the telemedicine formula gives Vitality customers faster access to private facilities.
On the protection side, there’s LifeStyleCare Cover, billed as a “flexible life policy to help people who fall ill later in life.”
It pays a lump sum when policyholders can no longer look after themselves due such problems as frailty, stroke, or degenerative disease.
And Vitality will be placing a new emphasis on whole of life, perhaps bundling it with end of life care.
“Protection has largely ignored older people,” says Koopowitz. “It has focused on mortgage policies and growing families. But the end of guaranteed pensions coupled with changing life styles means the post-retirement market should come back into contention for protection needs, perhaps whole of life.”
Overall, Vitality believes its “fundamentally different” formula “leads to healthier members, lower claims and more productive and engaged employees.”
And that is something which chimes with many advisers.
Roy McLoughlin, of Master Adviser, winner of the Health Insurance Best Group Risk Adviser Award 2014, is an enthusiast.
“They’ve shaken up the market,” he says. “Too many insurers sit on their hands and don’t innovate. They are raising the profile of group protection.
“But above all is its marketing and technical support for advisers. We don’t get much help from traditional companies, especially in the SME space. Most of those have also failed to realise that pensions auto-enrolment opportunities have put protection back on the agenda. It’s become one of the main go-to companies for group and individual policies.”
McLoughlin does, however, see some Vitality products as over-complex.
“A product can be fantastic but if it’s too difficult to explain, the client will move on. That said, the protection market should expand exponentially although as there are not enough advisers, and not enough insurers, any company which takes a lead in the market deserves to gain attention,” he adds.
Emma Thomson at LifeSearch, the advisory firm, is also a fan.
She says: “Vitality’s results are very positive; it’s welcome to see an insurer that’s brave enough to be innovative and to do something different, go from strength to strength. It demonstrates that it is possible to have a profitable business model that provides a quality experience to customers, as opposed to focussing on the cheapest rates.”
Peter Chadborn at Plan Money, a financial adviser in Colchester, sees Vitality as a “genuine success story, while its huge advertising spend means clients know the name – always helpful. Not many competitors promote protection as Vitality does. The innovations appeal to me – but with some hesitation.”
Why the hesitation?
“Take severity-based cover, which many have imitated with partial payments,” CHadborn says. “I like it but it’s a Marmite question for clients. Some manage it well, loving the discounts and rewards, especially those willing to live a healthy lifestyle. But for the many who see protection as an unwanted distress purchase, it’s not attractive.
“You can’t describe the SIC Booster (a 15% premium uplift to reverse a reduced Severe Illness Cover payment) or the Vitality Optimiser (rewards and discounts on future years premiums depending on health levels) to a client in a few lines. Add my research to the customer time, and you have an hour or so. There’s a danger that the client or the adviser or both just glaze over and the customer walks. There’s a lot of hassle.”
Chadborn says he uses Vitality “for protection clients who are both engaged in healthy lifestyles and prepared to invest time in the process, for the others we mention Vitality but move on to the most attractive traditional policy. But those who do sign up are fantastically loyal.”
Tom Conner at Drewberry Insurance, the intermediary, has doubts.
“Their claims handling has improved and overall it’s good to see something different,” he says. “They stand out in a market that’s bland even if it has sometimes been confusing with Vitality the programme becoming Vitality the brand, for example. And I wonder about some figures – they talk of 1.2million gym visits in a half year but assuming one visit a week, that’s just 46,000 out of 867,000 customers.”
He adds: “Under 5% of our policies go to Vitality even though we think its serious illness cover is very good. We can generally find better value but if you factor in the cinema and the gym and the bike shop discounts – and this takes you outside the normal advice area – then there is an appeal to a client who does these things. There is also an appeal to corporate clients as signing up to Vitality gets rewards which is effectively a ready made perks programme. I would like to know, however, how much Vitality pays to subsidise gyms and bike shops and the effect on premiums.”