March Shaping the Digital Future FLASH INSIGHT. Digital Fitness Tracking Programs Additional Business Value for Health Insurers. Steps.

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1 March 05 Shaping the Digital Future FLASH INSIGHT Digital Fitness Tracking Programs Additional Business Value for Health Insurers Steps Calories

2 Copyright This document is intended for personal use only. 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.

3 Since 0 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

4 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 Register Set-up Collect Points Redeem Points Score 4 Mobile App Compatibility Costs Activities Goal Benefits Redemption Process 4 Misfit tracker, HealthKit, app 4 Free fitness tracker F One, dynamic D Automatic Many trackers, app, multiple physical cards Program fee & Purchase fitness tracker F, N, H, D Several, predefined D Manual selection 6 Website Fitbit tracker, app, Fluybuys card Purchase fitness tracker F, N One, predefined D, B Manual selection 5 Website Withings tracker, app Purchase fitness tracker F One, predefined D, I* Manual selection 5 Website Fitbit tracker, app, paper bonus sheet Purchase fitness tracker F One, predefined D, B Manual selection 4 Website Smartphone, app Discount on fitness tracker F No goal None None Letter/Fax Smartphone, app, paper bonus sheet for fitness program 4 Free F No goal Activities: F: fitness activities; N: nutrition; H: health assessment; D: drug consumption 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 None None Evaluation is based on a scale of

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 997. Background Oscar Founded in July 0 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: 0,000 insured members Business Valuation: $800 million (5/04) Venture capital funding $74 million Known for its innovative approach to health insurance with a strong focus on digitalization Start of fitness tracker program with Misfit in December 04 Discovery Vitality Founded in 997 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/Australia, Germany Vision: Make people healthier and enhance their lives through a scientifically-based wellness program Customer base:.7 million insured members in South Africa, over 5 million members worldwide Normalized profit from Vitality operations: $. million Introducing Vitality made Discovery a pioneer regarding wellness programs Through joint venture with AIA Group Announced for 06 via Generali partnership Source: Mücke, Sturm & Company, company website 5

6 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 Register Set-up Collect Redeem Free program for policyholders Free app download Registration via app 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 Collect point per day (maximum 0 points per month) by reaching step goal On the basis of an individual profile Oscar will increase the daily goal from,000 up to 0,000 steps per day Only steps are tracked If goal is reached, member automatically receives with discount Monthly $0 Amazon voucher if goal of 0 points per month is reached Paid program ( / month) for policyholders Registration via application form that is sent via or fax Registration and activation of several physical cards needed (e.g. for certain retailers) Download app/create personal online account Compatible with many fitness trackers Physical Discovery Card is activated & needed for identification Multiple activities Health assessments Fitness activities Healthy nutrition Drug withdrawal Members can collect 50/00 points for 0,000/,000 steps 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) Source: Mücke, Sturm & Company, company websites 6

7 Digital fitness tracking programs are attractive for health insurers as they offer both monetary and non-monetary benefits. Overview Benefits. Short-term. Mid-term. 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 7

8 Posts 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 / Week of announcement +% ø Day of announcement +0% Oscar Health Oscar Insurance Oscar Health Insurance Day of announcement +4% Photos Posted Week of announcement Engagement Source: Mücke, Sturm & Company; Google Trends; TwitterCounter.com; Quintly.com 8

9 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 / Sign-Up Process Company Blog 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 Oscar highlights the free Misfit tracker and possible rewards during the sign up process + "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. Co-Founder Josh Kushner, company blog, Source: Mücke, Sturm & Company, company website 9

10 The fitness tracker initiative is a cheap marketing tool for Oscar. MS&C estimates that with the addition of only 40 new members Oscar would reach break even. Short-Term Benefits Marketing Impact / The Sportsman % 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 4% Shows very little activity and has low interest in improving his fitness Customer Segments,00,000 6,800 Based on 0,000 members Achieved Rewards Frequency of achieving the monthly goal Costs of the Initiative Misfit wholesale price $0 Amazon $0 per month 8 4 $96,000 $,00,000 $7,000 Reduction of Claims through increased health Long-term effect Bottom Line for Oscar Marketing Costs $.8 Million Break Even + Acquisition of 40 new members International Food Information Council (IFIC) 0 Source: Mücke, Sturm & Company Assumption of purchase price for Oscar Calculation is based on base tariff on website of $50 per month 0

11 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 Data Collection Data Interpretation Realization of Benefits Wellness & Prevention Diagnose & Treatment Care & After- Treatment Example: Step Tracking How often/long do members move or engage in fitness activities? How many members move regularly or do fitness? Improve risk calculation Nutrition 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? Improve pricing or create new tariffs State of Health Healthy Living Factors of Influence Movement Which insurance groups show the highest progress in their fitness level? + Acquire new customers Source: Mücke, Sturm & Company; Northwestern Medicine; World Health Organization: Social determinants of health ; DKV Deutsche Krankenversicherung: DKV Report 0

12 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 - Risk 85 % of Vitality members are engaged in preventive and health activities 4 % 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 0 % lower costs for kidney, respiratory, endocrine, nutritional and metabolic issues Average savings of $84 in healthcare costs 0 % or $0 million savings of total claim expenditures Discovery Health operating model Vitality program Healthcare provider network & assets Risk management assets Digital Tools savings in the year 04 Source: Mücke, Sturm & Company, Discovery Integrated Annual Report 04

13 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 Key Take-Aways. Digital fitness tracking programs are being adopted around the world Since Discovery s Vitality went digital in 0, health insurers in several countries have adopted digital fitness tracking programs.. 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.. 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). 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 Source: MS&C Analysis