Is it what they expect?
DISCOVERY LIFE: PRODUCTS FAR TOO COMPLEX, SOME EXPERTS CLAIM
Good idea to incentivise people to be healthy, but it’s become too complicated, says certified financial planner.
In a recent post on his InsuranceFundi website, Lawrence Blake argued: “If there’s an award for the most complicated life insurance product on the market, then Discovery would take it hands down”.
Many financial advisors and planners are concerned about these products’ complexity, and whether clients always get appropriate advice on them.
“I have been in the industry for 23 years and I struggle to understand how all their products integrate,” says Core Wealth Advisory Services certified financial planner Stephen Cole. “… I can’t in good conscience market it to my clients.”
Shared value
Discovery Life’s offering is optimally designed to integrate with its Vitality programme and medical aid. Discovery Life head of R&D Gareth Friedlander says 54% of products are taken out with the health integrator, linking them to a client’s Vitality status and medical aid claims; 28% are linked to Vitality only, and 18% are sold as standalone products. Linking these products together makes Discovery Life unavoidably more complex.
The rationale is healthier clients live longer, make fewer claims and keep their policies in place for longer. This greatly decreases Discovery’s risk and payouts and it can return a great deal of the subsequent extra profitability to clients.
“The core belief is that if you can change behaviour you can create value that never previously existed,” Friedlander says. “… We have seen that our clients on Vitality have a 20% lower mortality rate than the rest of the industry and client on Diamond status has a 75% lower mortality rate.”
This means clients with a higher Vitality status and low medical aid claims can see significantly reduced premiums and cash-back payments.
Discovery gives a large up-front discount to Vitality members, so their starting premiums are low. However, if they don’t keep their Vitality status high, some of this discount will be clawed back, and premium increases can be larger than expected.
Appropriate or not?
Blake has seen cases where clients appear to have been sold a Discovery Life product based on an unlikely best-case scenario.
“If you are maintaining Gold or Diamond Vitality status, your insurance can be incredibly cheap, and that’s how they market their product,” says Cole. “There is a very specific target market I think it works for, but the majority of the market is sold a product that isn’t really suitable.”
Could things be more simple?
“It is a good idea to incentivise people to be healthy, but it’s all become too complicated,” says Client Care certified financial planner Dirk Groeneveld. “In a business where we need to do due diligence on four or five companies to honestly advise our clients correctly, if you have a product like Discovery Life, you just can’t take enough time to do it …”
“For me there is a very big difference between complexity for the sake of value for clients, versus unnecessary complexity. If something is worth doing, and we believe this is, then if it’s done appropriately and explained properly, then that complexity is worthwhile,” Friedlander says.