Can we create additional value in long-term savings?

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People are saving less for retirement and living longer. Will their savings be able to last their lifetime?

The UK long-term savings market has become increasingly advanced and sophisticated, but it still faces a number of challenges stemming from issues like increasing life expectancy and the growing degree of individual responsibility for managing pensions. To put this into context, today the average 60-year-old female in the UK has a 34% chance of living beyond 90 (that’s 2.1 times more likely than in 1980), while the average 60-year-old male has a 23% chance (that’s a staggering 4 times more likely than in 1980)¹. The implications of these increasing life expectancies for financial planning in a time where paternalistic final salary schemes have become a thing of the past are immense.

Off the back of the success of the shared value approach of our life and health insurance businesses, and considering the nature of the challenges that face this market, we’ve identified long-term savings as the next opportunity for innovation built around improving customer outcomes. Hence, the launch of our new business VitalityInvest.

As you may know, our insurance businesses are underpinned by a shared value model, which has already resonated with over a million Vitality health and life insurance clients².

If you’re not familiar with the concept, shared value was defined in a Harvard Business Review article by Professor Michael Porter³ and Mark Kramer⁴: it’s a framework to create economic value, while at the same time addressing a societal need. The idea is simple: business models can and should address social issues to generate profit. Vitality’s business model is an application of this in the insurance world: we reward our clients for taking care of their health. This results in lower claims for us, and we channel some of these savings back to our clients in the form of additional rewards and lower premiums. This creates a virtuous and self-reinforcing cycle that results in more loyal clients, as well as a healthier, more productive society. Simply put, the economic value we create simultaneously benefits clients, advisers, ourselves and society.

By launching VitalityInvest, we see an opportunity to incorporate this shared value model into unique pre- and post-retirement investment solutions, enabling clients to benefit from shared value over their lifetime.

As a result of our extensive global experience in this space⁵, we’ve built up data on more than 40 million life years of the correlation between incentives and behaviour change. This allows us to design innovative products that encourage and reward positive health and savings behaviours.

We believe these products will encourage your clients to start saving earlier, take care of their health, and manage income responsibly throughout retirement. This in turn will generate additional revenue for us, which we can channel back to your clients to further enhance their investments.

At the same time, we’ve collaborated with world-renowned research partners at the University of Cambridge and RAND Corporation to develop sophisticated algorithms that model the complex links between health, lifestyle behaviours and longevity. This allows us to create advanced financial planning tools that will enable you to incorporate personalised health information into retirement planning for your clients, emphasising the vitally important links between health, longevity and financial planning.


Sources
1. Office for National Statistics, National life tables: United Kingdom, September 2017 
2. VitalityInvest Technical Marketing, May 2018
3. Michael E Porter is the Bishop William Lawrence University Professor at Harvard Business School
4. Mark R. Kramer is a Senior Lecturer of Business Administration at Harvard Business School
5. Vitality shared value insurance has been adopted in 19 markets around the world, and the model is now impacting over 7 million lives globally. Vitality internal source, December 31 2017
VitalityInvest is a trading name of Vitality Corporate Services Limited. Vitality Corporate Services Limited is authorised and regulated by the Financial Conduct Authority.