The Rationale for a Loyalty

Abstract

The health insurance industry in South Africa has become increasingly re-regulated, where legislation enforces community rating, precluding the insurer a means to mitigate risk. Insurance institutions are also subject to adverse selection and moral hazard of consumers, resulting in products being most attractive to the unwell, elderly and those most likely to claim. Loyalty programmes have been launched in the retail, hospitality and travel industries as a means to attract and reward the most profitable consumer segments and retain these customers over a greater portion of their lifetime. Loyalty programmes are however a novel offering in the health insurance industry and have been launched with varying degrees of success, requiring an understanding of why a loyalty programme is needed and how it should be structured to achieve its objectives. In-depth interviews were conducted at a case site - the Vitality programme of Discovery Holdings. It was found that the Vitality programme was implemented to attract and retain young and health-conscious members through rewarding their health managing behaviour and providing differentiation. The Vitality programme has also demonstrated an ability to drive health managing-, loyal- and cost effective- behaviour improving the health indicators of its member base year on year, and potentially contributing towards a lower claims rate and lowered risk of chronic illness and disease in the long term. Discovery have used Vitality as a means to cross-sell other products and services to members. The programme follows a customer club structure and is multi-partner in nature. It is supported by sound financial analysis, is operated as an autonomous business unit and expected to be profitable and self-sustaining. Rewards have a high cash value, and are easily attainable and redeemable through broad earn opportunities and spend possibilities. Rewards are aspirational and have relevance to their target market. The tiered member structure is used to enhance the psychological benefit of belonging to the programme. The research should be of value to health insurance institutions debating the implementation or discontinuation of their loyalty programme.