Discovery’s Adrian Gore :
Discovery Group CEO Adrian Gore has been partof the business for more than 20 years, but there is no slowing him down as plans for global expansion are in the works.
“We are incredibly well positioned for growth”
Discovery Group is looking to build a war chest to further expand its evolution from South African health insurer to a multi-financial service provider with a global footprint
On 24 February, founder and CEO Adrian Gore said that the group plans a rights issue of R4bn to R5bn, mainly to fund its UK subsidiaries VitalityHealth and VitalityLife. Discovery bought out the remaining 25% of the business from Prudential for R2.8bn in November last year. The UK operations, which suffered an operating loss of R13m in 2010, reported an operating profit of R432m last year.
The UK of fe r s a st a bl e a nd commoditised market, with a high preva l ence of disease, a n ageing population and substantial size (the third-largest in the protection market with over 12m people). “The UK offers great substantial opportunity,” Gore told Finweek. Discovery sees the UK as its second primary market, and it was therefore “critical” to take full ownership of it, he says.
In the past Discovery expanded opportunistically, says Gore. Today, the group is more disciplined in its expansion strategy. It considers its primary markets (where it is the primary insurer), and then expands into adjacent markets, Gore says. “We make sure the [business] model keeps its integrity.”
We do have the ability to build a globally
unique relevant, insurance model applicable for the times.”
Discovery has been very successful with its behavioural incentive model, which rewards members for making better health and lifestyle choices. This model leads to f inancial benefits for both consumers and Discovery, and lower lapse rates. It aims to earn $1bn (R11.4bn) in pre-tax earnings by 2018 (its pre-tax earnings for the six months to end December totalled R4.2bn), generate 20%-25% growth in operating earnings (compared with 9% in the interim period), and be a top two provider in the markets in which it operates.
Despite the expensive failure of its f irst US expansion, Gore believes Discovery has the ability to perform well as a “disruptor” in developed markets. Its medical insurance business Destiny Health in the US, established in 2000, was closed in 2008 after the company struggled to win substantial market share and contain costs. It invested more than R1bn into the venture.
Its Vitalit y business in t he US currently covers 700 000 members, while it is planning a new expansion into that country through a partnership with a major life insurer. The details of this will be announced soon.
Its partnership model, which sees Discovery enter the life-insurance market through partnerships with established companies in countries with large lifeinsurance industries, a high prevalence of non-communicable diseases, a strong intermediary presence and product commoditisation, has seen its footprint expand to Australia, the US, Europe, Singapore and China.
“I think that the partner markets where we’ve partnered with larger firms, offers us the ability to expand into markets we really wouldn’t go into alone,” says Gore. These partnerships include AIA Group in Singapore and Chinese insurer Ping An.
Growing consumer demand for private healthcare services is one of the factors driving Discovery’s expansion into China, where it plans to grow its 17 existing branches to 36 by the end of 2015.
It is estimated that China’s population of elderly people would exceed the size of the entire US population by 2050, while its middle class would reach 700m
by 2020, creating demand for private healthcare and insurance. The Chinese government is also regulating changes in tax to incentivise private healthcare and health insurance, and technological development is set to innovate China’s insurance industry.
Despite Discovery’s expansion, the group has remained true to the core value of making people healthier, says Gore. The work done in primary and partner markets will make it possible to globalise the model. “We do have the ability to build a globally relevant, unique insurance model applicable for the times,” he says.
Gore explains t hat Discover y’s approach t o e x pansion i nvolves repeating the business model in various markets, as opposed to growing through acquisitions, which is risky. He says that there are future growth prospects outside of current businesses ( Health, Life, Insure, Invest and Card), but says there is considerable growth opportunity as it is. As for t ransformation within t he business, Gore says: “I think we’re doing a reasonably good job across the organisation. The board itself I think is pretty representative by gender and by race.” He says that the new BBEEE codes provide a clear roadmap of what has to be done in industry. “We can certainly do better and we will.”
Discovery is ranked as a level 3 BEE contributor, with black ownership of 19.05%, according to its October 2013 verification, the latest available. Its nine executive board members are all male, and only one is black. Of its 11 nonexecutive directors, four are black and only three are women.
Having founded the group in 1992, Gore says that he’s only halfway through the marathon. “If I don’t add value then I would certainly think of stepping down, but at the moment I think I’m in my stride.”
Gore leads an active lifestyle and has scheduled to ride the Argus next week. “I’m not sure how well I’ll ride, probably badly. I hope I f inish it.” He and his wife are diamond Vitality members and make use of the travel and food Vitality benefits. “We are Vitality junkies,” he admits.