Shaping the Digital Future

Digital Fitness Tracking Programs Additional Business Value for Health Insurers

March 2015

FLASH INSIGHT

Steps

Calories

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Copyright

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Distribution is only permitted without any changes or omissions – publication, in

whole or in parts, requires prior written consent by MÜCKE, STURM & COMPANY

and correct citation of sources.

All mentioned company names, logos, brands, brand symbols and other copyrighted

material are the sole properties of the respective company; they are only used for

illustrative purposes.

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Since 2011 health insurers around the world have been launching digital fitness tracking programs. Discovery‘s Vitality program is available in several countries. Overview Digital Fitness Tracking Programs

Source: Mücke, Sturm & Company, company website

2011 2012 2014 2015 2016 2013

4

Register Set-up Collect Redeem Score

Compatibility Costs Activities1 Goal Benefits2 Redemption

Process

4 Mobile App

4 Misfit tracker,

HealthKit, app

4 Free fitness

tracker

1 F

3 One, dynamic

2 D

3 Automatic

e-mail

21

2 E-Mail

3 Many trackers,

app, multiple

physical cards

1 Program fee &

Purchase fitness

tracker

3 F, N, H, D

3 Several,

predefined

2 D

2 Manual

selection

16

3 Website

2 Fitbit tracker, app,

Fluybuys card

2 Purchase fitness

tracker

2 F, N

2 One, predefined

2 D, B

2 Manual

selection

15

3 Website

3 Withings tracker,

app

2 Purchase fitness

tracker

1 F

2 One, predefined

2 D, I*

2 Manual

selection

15

3 Website

2 Fitbit tracker, app,

paper bonus

sheet

2 Purchase fitness

tracker

1 F

2 One, predefined

2 D, B

2

Manual selection

14

3 Website

1 Smartphone, app

3 Discount on

fitness tracker

1 F

1 No goal

1 None

1 None

11

1 Letter/Fax

1 Smartphone,

app, paper bonus

sheet for fitness

program

4 Free

1 F

1 No goal

1 None

1 None

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When comparing the digital fitness tracking programs, Oscar is a best practice example due to its innovative, easy-to-use program with a free fitness tracker. Comparison of Digital Fitness Tracking Programs

1 Activities: F: fitness activities; N: nutrition; H: health assessment; D: drug consumption 2 Benefits: D: discounts; B: bonus (products e.g. clothing); C: cash back; I:* insurance discount is planned to be offered

Source: Mücke, Sturm & Company, company websites

Register Set-up Collect Points Redeem Points

Evaluation is based on a scale of 1-4

5

While Oscar is an innovative U.S. health insurance startup that has recently started operations, Discovery’s Vitality program has been on the market since 1997. Background

Discovery Vitality

Founded in 1997 as part of

Discovery Health, South Africa’s largest health insurer

Based in South Africa

Geographic focus: South Africa, with franchises in

United Kingdom, United States, China,

Singapore/Australia1, Germany2

Vision: Make people healthier and enhance their lives

through a scientifically-based wellness program

Customer base: 1.7 million insured members in South

Africa, over 5 million members worldwide

Normalized profit from Vitality operations: $3.3 million

Introducing Vitality made Discovery a pioneer

regarding wellness programs

Oscar

Founded in July 2013

Based in New York, USA

Geographic focus: New York and New Jersey

Vision: Revolution of health insurance by improving

the consumer experience through technology,

design and data

Customer base: 20,000 insured members

Business Valuation: $800 million (5/2014)

Venture capital funding $174 million

Known for its innovative approach to health

insurance with a strong focus on digitalization

Start of fitness tracker program with Misfit in

December 2014

1 Through joint venture with AIA Group

2 Announced for 2016 via Generali partnership

Source: Mücke, Sturm & Company, company website

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Oscar offers a simple and free program with a monthly Amazon voucher, while Vitality is a rather complex and paid program that includes many different discounts. Overview Reward Process

Source: Mücke, Sturm & Company, company websites

Register Set-up Collect Redeem

Paid program (13 €/

month) for policyholders

Registration via

application form that is

sent via email or fax

Registration and

activation of several

physical cards needed

(e.g. for certain retailers)

Collect 1 point per day

(maximum 20 points

per month) by reaching

step goal

On the basis of an

individual profile Oscar

will increase the daily

goal from 2,000 up to

10,000 steps per day

Only steps are tracked

Receipt of free Misfit

tracking device

Misfit automatically

synchronizes with the

Oscar app

Alternative: Existing

fitness tracker can be

connected via HealthKit

with the Oscar app

Points lead to Vitality

Status which needs to

be retained/improved

over time

Manual selection of

rewards via website

Many discount

partners (Travel,

Lifestyle, Gyms)

If goal is reached,

member automatically

receives e-mail with

discount

Monthly $20 Amazon

voucher if goal of 20

points per month is

reached

Download app/create

personal online account

Compatible with many

fitness trackers

Physical Discovery Card

is activated & needed for

identification

Free program for

policyholders

Free app download

Registration via app

Multiple activities

Health assessments

Fitness activities

Healthy nutrition

Drug withdrawal

Members can collect

250/300 points for

10,000/12,000 steps

Set-up Redeem

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Digital fitness tracking programs are attractive for health insurers as they offer both monetary and non-monetary benefits. Overview Benefits

1. Short-term 2. Mid-term 3. Long-term

Monetary

Benefits

Acquisition of new members

due to marketing effect of

digital fitness tracking initiative

Acquisition of new members

due to more competitive

pricing (improved internal risk

calculation) and/or innovative

insurance tariffs based on

fitness tracking data

Long-term reduction of health

costs through increased

fitness and better control of risk

groups

Increased profitability

(depending on program

structure)

Higher customer loyalty and

decreased churn rate through

personalized insurance

premiums

Non-monetary

Benefits

Improved branding and brand

awareness through press

articles and word of mouth

marketing and thereby

increased competitive

advantage among potential

members and employees

Collection of multiple member

data as basis for increased

member insights which can

be used as input for developing

new digital services

Improvement of internal risk

calculation based on fitness

tracking data

Predictive analytics as basis

for prevention program

Source: Mücke, Sturm & Company

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020406080100120140160180200

0

1

2

3

4

5

6

Enga

gem

ent

Po

sts

Photos Posted Engagement

With the initiative Oscar has achieved a measurable marketing buzz in the digital space, which helps build a brand image of innovation through digitalization. Short-Term Benefits – Marketing Impact 1/3

Source: Mücke, Sturm & Company; Google Trends; TwitterCounter.com; Quintly.com

Week of

announcement

ø

+221%

Oscar Health Oscar Insurance Oscar Health Insurance

+4%

Week of

announcement

+10%

Day of

announcement

Day of

announcement

1 2 3

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Oscar actively uses the tracking initiative as a marketing tool. Based on company information 40 % of its new members signed up due to word of mouth marketing. Short-Term Benefits – Marketing Impact 2/3

Oscar highlights the free

Misfit tracker and

possible rewards during

the sign up process

1 Co-Founder Josh Kushner, company blog, 30.01.2015

Source: Mücke, Sturm & Company, company website

With its online blog Oscar incentivizes its members to

track their fitness activities and to stay healthy

The blog includes articles about fitness advices,

interviews with other members, press releases and

information about Oscar’s program

"40 % of our members signed up

with us because they heard about

us through existing members. We

are the first-ever viral health

insurance company.“1

Sign-Up Process Company Blog

+

1 2 3

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The fitness tracker initiative is a cheap marketing tool for Oscar. MS&C estimates that with the addition of only 430 new members Oscar would reach break even. Short-Term Benefits – Marketing Impact 3/3

The Sportsman – 11% Dedicates his lifestyle to

sports and is very active on

a regular basis

The Active – 55% Aims for an average level of

fitness and does sports on

an irregular basis

The Inactive – 34% Shows very little activity

and has low interest in

improving his fitness

Costs of the Initiative Misfit wholesale price $202

Amazon $20 per month $396,000 $1,100,000 $272,000

Bottom Line

for Oscar

Reduction of Claims through increased health

– – Long-term effect

Customer

Segments1

Based on 20,000 members

2,200 11,000 6,800

Marketing

Costs $1.8 Million

Acquisition of

430 new members3

1 International Food Information Council (IFIC) 2012

Source: Mücke, Sturm & Company

2 Assumption of purchase price for Oscar 3 Calculation is based on base tariff on website of $350 per month

Break

Even +

Achieved Rewards Frequency of achieving

the monthly goal 8 4 1

1 2 3

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By collecting more data about its members’ daily activities health insurers can derive new valuable insights on their members’ lifestyles and realize benefits. Mid-Term Benefits

Example: Step Tracking

How often/long do members

move or engage in fitness

activities?

How many members move

regularly or do fitness?

What is the preferred time for

fitness activities?

How do activities differ across

disease patterns/ age groups?

Can fitness results be

correlated with insurance

tariffs?

Which insurance groups show

the highest progress in their

fitness level?

…

Wellness &

Prevention

Diagnose &

Treatment

Care & After-

Treatment

Healthy Living Factors of

Influence

Move-ment

Nutrition

State of

Health

Source: Mücke, Sturm & Company; Northwestern Medicine; World Health Organization: “Social determinants of health”; DKV Deutsche Krankenversicherung: “DKV Report 2012”

+

Realization of Benefits Data Collection Data Interpretation

Improve risk calculation

€

Acquire new customers

Improve pricing or

create new tariffs

1 2 3

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Discovery Health‘s Vitality program proves that more active and healthy members lead to significant savings in claim expenditures for the health insurance. Long-Term Benefits

1 savings in the year 2014

Source: Mücke, Sturm & Company, Discovery Integrated Annual Report 2014

85 % of Vitality members are engaged in

preventive and health activities

Risk

41 % lower mortality risk and 9 % lower morbidity risk

7 % difference in probability of hospital admission

Costs

Difference of over $86 in hospital costs per insured member

30 % lower costs for kidney, respiratory, endocrine, nutritional

and metabolic issues

Average savings of $184 in healthcare costs

1 2 3

Digital Tools

Healthcare

provider

network &

assets

Vitality

program

Risk

management

assets

Discovery Health operating model

10 % or $320 million

savings of total claim expenditures1

-

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Digital fitness tracking programs are a growing global trend in health insurance and can create additional business value for insurers in the short, mid, and long term. Key Take-Aways

1. Digital fitness tracking programs are being adopted

around the world

Since Discovery’s Vitality went digital in 2011, health insurers in

several countries have adopted digital fitness tracking programs.

2. Attractiveness of rewards and usability are key

success factors

The U.S. health insurance startup Oscar stands out as best

practice example due to its simple and mobile only process that

has a high usability, and includes free fitness trackers as well as

an attractive reward that can be redeemed on a monthly basis.

3. Digital fitness tracking programs generate high

business value

Oscar and Discovery Vitality show that health insurers can profit

from digital fitness tracking programs in three ways:

Customer acquisition through marketing buzz (short-term)

Customer acquisition through more competitive and/or

innovative pricing, which is possible through the collection of

member data (mid-term)

Increased profitability through the reduction of health costs

(long-term).

Key Take-Aways

Source: MS&C Analysis

We are constantly analyzing industry trends

and developments in the sector of healthcare.

If you would like to discuss the impact of digital

fitness tracking programs on your business,

please get in touch with:

Michael Mücke

Managing Partner

m.muecke@muecke-sturm.de