Discovery
CEO Adrian Gore describes how the South African company has been shaking up its industry
through business-model innovation and explains what helps to catalyze new ideas. Discovery
Limited is a South Africa-based financial services group that is listed on the Johannesburg Stock
Exchange (JSE) with its headquarters in Sandton.
In 1992, Adrian Gore founded Discovery with an idea for a health-insurance model that would
make people healthier. The South African start-up quickly grew into a global player, with a market
cap of over $8 billion and a foothold in major markets, including the United Kingdom and China.
In the commentary that follows, Gore reflects on the Discovery Group’s sources of innovative
energy and on the organisational efforts required to maintain that energy as the company grows.
One key, says Gore, is that rewards and risk taking go hand in hand at Discovery, which puts its
money where its mouth is by making an innovation score part of each manager’s performance
evaluation and by conducting an annual competition to identify creative new ideas.
Gore launched Discovery Limited, a medical insurer, in South Africa. He raised seed money for
Discovery from Laurie Dippenaar, and other funders who founded Rand Merchant
Bank. Discovery has since evolved into a diversified and multinational financial services group.
Prior to Discovery limited, Adrian Gore worked at Liberty Life, an insurance and investment firm.
Discovery Limited now engages in long and short-term insurance, asset management, savings,
investment, and employee benefits through its various brands. The Group has subsidiaries in
South Africa, the United Kingdom, the United States, China, Singapore, and Australia. Discovery
Limited was successfully listed on the JSE (Johannesburg Stock Exchange) in October 1999
through a successful initial public offering.
In September 2015, Discovery Limited announced its intention to set up a retail banking subsidiary
with an initial $150 million investment raised through a stock issue. In March 2019, Discovery
Limited launched Discovery Bank, the world's first behavioural bank.
How did it all start?
When I started out as a young actuary in a life-insurance company, South Africa was moving from
an apartheid state to a proper democracy and facing some serious challenges, particularly in
healthcare. There was an undersupply of doctors, an unusual combination of disease burdens,
and a new regulatory environment that had zero tolerance for the discrimination of the past, and
rightly so. This meant you couldn’t rate customers on preexisting conditions. Finally, unlike most
countries, where a national system partially covers risk, there was no unified public healthinsurance system at that time.
When you put those four things together, sustainably financing healthcare becomes a very
complex undertaking. When we formed Discovery, we asked the question, “How do you innovate
and build a health-insurance system that can work in this kind of environment?” Our gut instinct
was that if you can make people healthier, you can offer more sustainable insurance. It turns out
that three lifestyle choices (smoking, poor nutrition, and poor physical activity) contribute to four
conditions (diabetes, cancer, heart disease, and lung disease) that drive over 50 percent of
mortality every year. So lifestyle choices are fundamental to any social-insurance system. The
behavioural science tells us that people need incentives to make a change. But that wasn’t
universally known at the time; we were just a start-up acting on a hunch.
When we were starting out, a massive gym chain approached us with the idea to sell our health
insurance to their membership base—a classic cross-sales strategy. Our breakthrough came
when we flipped this idea around: What if you can use the gyms when you get your insurance
from us? But we couldn’t figure out how to afford it. Then we thought, “Well, what if you earn
points by doing healthy things? Then those points give you access to cool rewards and a discount
on your premium?” That idea was the catalyst for everything, which I think is true of innovation.
It’s a moment in time. It’s not always a revelation in a laboratory. In my experience, it’s right there
in front of you. Once you get it, you run with it.
The genesis of Vitality
That initial idea was the genesis of our Vitality program, which has evolved into a complete
wellness system that tracks everything from physical activity to nutrition over the course of a
person’s life. For instance, customers earn points by logging their workouts with fitness devices
from Nike+, Fitbit, and others. These sync up with Vitality directly, through a computer, or with
mobile apps on smartphones. When you go to our partner grocery stores, the healthy food is
clearly demarcated on the shelf, and you get a 25 percent discount at the register when you swipe
your Vitality card. When we first launched the program, we were criticized for wasting healthcare
dollars on incentives, but customers went berserk for it.
Today, Vitality is the foundation of our business model, driving every one of our offerings. Take
life insurance. It seemed to us that the system was broken. What happens when you fill out an
application? They basically cut you in half for a detailed health analysis—blood tests, medicals.
From that, they derive a very sophisticated rating that often comes with a rate guaranteed for life.
But how does it make any sense to set a rate at a certain point in time, when a change in your
behaviour could shift the underlying risk throughout your life?
So we decided to offer a new, competitive model. The beauty of it is the shared value it creates
for our customers, our company, and society. Our customers are given an incentive to become
healthier, lowering their premiums. And we are able to operate with better actuarial dynamics and
profitability. In 2001, we rolled out Discovery Life on this basis, and soon became the numberone provider of life insurance in South Africa. Our competitors have been around for more than a
hundred years, but they don’t have Vitality. If you understand the scale of the program, you can
see it’s not a capability that could easily be copied. We log 70,000 gym visits per day; people
have bought a hundred million dollars’ worth of healthy food in the last few years through our
structure. Vitality has provided a competitive advantage that has served us well both inside our
home country (South Africa) and beyond it.
The flexibility of Vitality’s structure allows us to enter markets where we could never become the
main insurer; the barriers to entry are just too high. We can instead partner with established
insurers in those markets by scaling our Vitality model as needed. In the United Kingdom, we
worked with Prudential initially but recently acquired full ownership of our health- and lifeinsurance businesses there. In the Asia–Pacific region, we are now rolling out our model across
some of AIA’s markets. We also have an equity stake in Ping An Health, working with one of
China’s largest insurers, Ping An. Just this year, we’ve established a new partnership with John
Hancock Life Insurance in the United States, and we’re developing one with Generali in Europe,
as well.
The model that keeps on giving
Just as Vitality has allowed us to expand geographically, it has also been an additive model that
can accommodate other dimensions. For instance, we found that most motor insurance suffers
from the same irrationalities as healthcare and life insurance: people underconsume wellness,
which in this case means safe driving. We saw an opportunity to develop a standard vehicletracking device that monitors not only the location of a car but also how people are driving—the
acceleration, G forces. Rory Byrne, a South African engineer who designed cars for the racing
driver Michael Schumacher, has helped us with the telematics to build a Formula One–level
analysis of a person’s driving behaviour. But that requires a complex black-box install in the car.
So, we’ve been working with a company founded by two MIT professors to build an application
that also works directly through your smartphone. It has given us some amazing insights into what
we call “driving DNA.” We can immediately tell if someone else is driving your car or if you’ve
gotten into an accident, just by the deviation in data, which raises a red flag. The Vitalitydrive
program allows us to track our customers, to reward them for good driving with a lower premium
and a discount on petrol, and to provide real-time emergency assistance.
A cycle for innovation
We’re often asked, “Can you keep innovating?” The truth is, I find that the more you innovate, the
more you can innovate. Most innovation in companies is event based. A competitor comes up
with something, and the company responds. We do the opposite. Our leaders are always on a
treadmill to create and launch new ideas. For example, every year we have a rock-star launch
where we’re presenting something new to thousands of our intermediaries who own sales. Our
guys know the date is booked. The concert’s happening. You just better write the music.
We have growth metrics for a lot of what we do. Our earnings per share have grown by 25 percent
a year, compounded, for the last two decades, with little capital. But my personal view is that the
rationales behind innovation and earnings targets are not really great bedfellows. You have to
invest in innovation, even if you don’t know where it will end up. But with a growth-target mindset, you’re always thinking, “Oh, we can’t do this, because it’s going to undermine our margins”
or whatever. You ought to do both well, but it’s challenging to balance those two parts of your
brain.
To push ourselves to find the next idea, we have an internal competition every year called
Inspiring Excellence, where our top one thousand leaders break into teams of two to four people
and work on new concepts. Throughout the year, we hold contests until we’ve narrowed down to
the top five teams, who present at our annual management conference. Even ideas that don’t win
often prove to be winners later on, when we roll them out. This program provides us with a strong
inventory of possibilities, which are continually replenished.
Twice a year, our remuneration committee looks at each business and gives it an innovation
score. So the take-home bonus of a thousand people is based on a subjective review of the
success of their launches. But even beyond that pool, all our employees are involved in this timebased cycle, working on projects. Across the organisation, there’s a natural metronome of our
innovation. I genuinely believe that the smartest people work for the organisations they believe
are doing good. At Discovery, our people have built innovative businesses that are good not only
for the company but also for our customers. I’m dedicated to Discovery’s work in building South
Africa and communities around the world. I want South Africans to look at Discovery with hope,
to feel the future is certain.
Overview of Discovery’s financials for year end 2022
The Group delivered a strong operating performance from the established operations and
remained resilient in a challenging macro-economic environment. The organisation’s drive for
growth manifested through Discovery Bank and in the ongoing evolution of its global healthcare
model, notably with the establishment of Amplify Health. In addition, the Vitality Shared-value
business model continued to demonstrate its relevance and ability to deliver value to clients and
Discovery across all aspects of the value chain as well as to broader society. This supports
continued investment in the model. The operating environment for the full year ended 30 June
2022 was characterised by two significant factors: Firstly, the evolution of COVID-19, as the
emergency phase of the pandemic has passed, with conditions in most markets normalising,
except for Asia which was affected by severe lockdowns and restrictions. Secondly, considerable
geo-political polarisation and macro-economic volatility, caused by a combination of the COVID19 pandemic, Ukraine conflict, and supply-side constraints. This resulted in higher inflation,
increased interest rates as well as currency and market volatility.
In light of this, the Group focused on a pivot to growth based on three strategies: (1) Achieving
robust performance and strong competitive positioning of businesses within the South Africa
(“SA”) Composite, United Kingdom (“UK”) Composite and Vitality Global, by successfully
navigating the latter stages of the COVID-19 period; continuing to invest in the Vitality Sharedvalue business model; and ensuring excellent execution and operational delivery. (2) Driving new
business initiatives to scale, led by Discovery Bank and initiatives within Vitality Group, notably
Amplify Health, and streamlining some initiatives so the Group is well positioned for strong growth,
and ensuring spend on new initiatives reverts to the Group’s long-term guidance of 10% of
operating profit. (3) Ensuring capital and business strength and discipline with high levels of
liquidity and solvency and a commensurate reduction in the Group’s financial leverage ratio.
Innovating into Banking
In Price Waterhouse Cooper’s (PWC) 2017 report, “A market place without boundaries – The
future of banking, a South African perspective”, we outlined three major trends shaping the local
banking sector:
1. The emergence of digital solutions with lower-cost models launched by adjacent financial
services players
2. The emergence of sector and industry-specific banks, closely integrated with broader
supply chains, launched by non-financial services players; and
3. Ongoing transformation of the four universal banks to address changing customer,
regulatory and technology needs.
The past year has broadly confirmed our initial view on the changing nature of the sector, although
the pace of change has in some cases slowed down. While TymeBank has just recently softlaunched with limited services, the growth of branchless, digital banking is still awaiting the public
launch of high-profile players such as Discovery Bank, Bank Zero and African Bank’s ‘My World’
transactional offering. However, the scheduled launches of these banks and their offerings
coinciding over the last quarter of 2018 to early 2019, confirms that the South African retail
banking sector will soon experience a significant uptick in competition.
These new digital players are being encouraged by the friendly regulatory environment promoted
by the local banking regulator, the South African Reserve Bank (SARB). During 2018, we
witnessed the SARB work with the national banking community to assess the application of
distributed ledger technology (DLT), as well as drive payments’ modernisation through the realtime gross settlements (RTGS) renewal project. In addition, the SARB has made encouraging
remarks about the creation of a ‘regulatory sandbox’ designed to test new business models and
solutions in a controlled regulatory environment.
Launching Discovery Bank
“We have never ever been first to market, we have always been more of a disrupter,” Adrian Gore,
founder and chief executive of Discovery, said on Thursday. “The behavioural model that we have
has a great value in the banking space.” Gore said that the “soft spot” for accruing customers is
through existing clients – the bank has 300,000 card customers, and just over two million
Discovery customers in total. Gore said that the bank could develop a very loyal market. “For the
first time, South Africans are being offered a bank that’s built, from its core, to improve financial
behaviours,” he said.“In this way, Discovery Bank actively encourages and rewards financial
resilience, which leads to benefits in all areas of life. It’s time to bank healthier. There couldn’t be
a truer manifestation of Discovery’s core purpose – to make people healthier and enhance and
protect their lives.”
Discovery Bank is designed to share the value that you create by managing your money well,
back with you through unprecedented interest rates, retail and travel discounts and other rewards.
Here's everything you need to know to get set up. As a shared-value bank, our main goal is to
improve your financial wellbeing. We’ll help you change how you work with your money by guiding,
motivating and rewarding you for getting financially healthier. Vitality Money measures how well
you manage your finances, from paying off your debts, saving for longer and making sure you’re
covered for unexpected events. The better you do, the higher your Vitality Money status;
unlocking your personalised shared-value stack of rewards.
The Boston Consulting Group (BCG) presented original research at a live event at the
Discovery head office in Sandton on 29 August 2022. The report, titled The Future of Retail
Banking in South Africa was compiled in partnership with Discovery Bank and captures data
and insights from consumers, businesses, and global industry experts on the country's
imminent banking revolution.
Hardly anyone today would doubt that at some point in the future, retail banking will be
completely digital. With the combination of data analytics, digitised services and personalised
marketing that is already available, the day is coming when a customer will be able to conduct
every bank service imaginable, from opening an account to managing personal finances or
from talking to a consultant to finalising a home loan, with just a few taps or a voice command
on a mobile app.
While a completely digital banking environment requires a supporting infrastructure that
includes appropriate regulation, advanced security protocols and high smart device usage,
many bank consumers believe the digital new dawn for South African retail banking will be a
reality as soon as the year 2027. Discovery Bank and the Boston Consulting Group (BCG) set
out to research what to expect for the future of retail banking in South Africa. The majority of
the 1,000 consumers and 400 businesses included in the research see the possibility that
South African retail banking can become fully digital in just five years. Given continued
regulatory developments, smartphone proliferation and watertight security, there will soon be
a limited need for physical retail bank branches as we know them. An evolution in con sumer
banking expectations has been well underway since early in the new millennium, but it picked
up speed when the COVID-19 pandemic forced consumers to conduct more of their activities
online, including banking.
We have found, in fact, that many South Africans are fully ready to do all or most of their
banking digitally, but in a number of cases, their banks are behind the curve. Consumers want
digital solutions that are not only more intuitive, convenient, and secure, but also integrate a
large breadth of their banking services into a single ecosystem, accessed through a single
interface. Consumers want their banks to redefine service in ways that add value to their lives,
especially in personalised, real-time, interactive financial management and in providing cuttingedge fintech. Equally important, however, consumers want the machine to have a heart. No
matter how smart the artificial Intelligence (AI) may be, people want to engage with people,
especially when resolving complex, high-value transactions. How should banks respond?
There are multiple business models for the digital age. What they all have in common, however,
is that they have bionic features. The initial client interaction is digital, but human engagement
is available whenever it is needed, with technology adding value to human capabilities. As
consumers have become accustomed to the intuitive ease of shopping, accessing
entertainment, or accessing South Africa is ready for the future vast information ecosystems
through a few taps on a mobile app, their expectations have evolved. They are now ready for
a transformation that will redefine what it means to be a retail bank.
What about the NHI?
Business Leadership South Africa (BLSA) chief executive Busi Mavuso has warned that the
government’s National Health Insurance (NHI) plans – in their current form – will spell the end for
private provision of healthcare and will leave everyone in the country worse off. While the NHI bill
– recently rubber-stamped through parliament’s portfolio committee on health – purports to bring
universal healthcare to all at an affordable price, Mavuso said that the ultimate result is more likely
to be a bureaucratic mess that takes all choice away from patients, while killing private healthcare
providers. “In my view, the NHI envisaged in the bill would leave all South Africans worse off in a
system in which state provision becomes impossible and private health provision is effectively
closed down,” she said. “The system would impose a single-payer model in which government is
the only buyer of healthcare services for its citizens. It would relegate the private health insurance
market to only complementary healthcare that is not covered by the state scheme.”
Discovery’s opinion on the NHI
We are supportive of structural change that assists in strengthening and improving the
healthcare system for all South Africans, and we are committed to assisting where we can in
building it, and making it workable and sustainable, seeking to ultimately st rengthen both the
public and private healthcare systems for all South Africans. While the NHI is a huge, complex
and multi-decade initiative and a considerable amount of debate and effort will be required to
make it workable, in this brief note, we review some of the key issues arising from the NHI Bill
and then look at the NHI policy process going forward.
The role of medical schemes once the NHI is implemented
A central issue is the future role of private healthcare and medical schemes once the NHI is
implemented. The NHI Bill states that when the NHI is ‘fully implemented”, medical schemes
will not be able to provide cover for services that are paid for by the NHI. Our strong view is
that limiting the role of medical schemes would be counterproductive to the NHI because there
are simply insufficient resources to meet the needs of all South Africans. Limiting people from
purchasing the medical scheme coverage they seek will seriously curtail the healthcare they
expect and demand. It poses the risks of eroding sentiment, and of denuding the country of
critically needed skills, and is impacting negatively on local and international investor sentiment
and business confidence. Crucially, by preventing those who can afford it from using their
medical scheme cover, and forcing them into the NHI system, this approach will also have the
effect of increasing the burden on the NHI and will drain the very resources that must be us ed
for people in most need.
We also believe that limiting the rights of citizens to purchase additional health insurance, after
they have contributed to the NHI, would be globally unprecedented and inappropriate. In
virtually every other country with some form of NHI, citizens are free to purchase additional
private health insurance cover, including cover that overlaps with services covered by the
national system. A restriction on choice of medical scheme cover is not dissimilar to limiting
the rights of citizens to purchase private education for their children or private security, on the
basis that the public system already provides state schooling and security services. Given the
substantial harms that this approach of limiting the role of medical schemes will cause, it must
surely be strongly justified for good policy reasons. However, we are not aware of any sound
policy reason or justification that has been put forward for this approach. We believe that
medical schemes will continue to cover all of the healthcare services which they currently cover
for the foreseeable future for a number of reasons:
• There is uncertainty as to when the NHI will be considered “fully implemented”, and this
is most likely to be quite far in the future due to resource constraints.
• There is no clear definition of services to be covered by the NHI, and it appears that
this definition will be expanded on an incremental basis.
• The Bill is open to interpretation. It states that medical schemes cannot cover services
“reimbursable” by the NHI. At the same time, the Bill states that to obtain
reimbursement, patients will have to follow the NHI’s ‘referral pathways’. If patients
choose their own providers, they will not be able to claim from the NHI but will be able
to claim from private health insurance. When read together, the Bill appears to
accommodate medical schemes being able to fund any services that are not
reimbursable by the NHI due to patients choosing not to use NHI pathways.
Discovery is already actively engaging with the Department of Health on this critical set of
issues, alongside the broader business community, and we will continue to do so in order to
ensure that medical schemes and private healthcare remains a critical p art of the healthcare
system, together with the NHI.
The financing of the NHI system
The Bill makes no reference to the likely costs of the NHI once fully implemented. Any
fundamental change that improves quality and access and seeks to contract with private
providers will require substantial additional funding. We understand that National Treasury will
soon be publishing a costing document, and that this is likely to be based on an incremental
approach to providing NHI benefits.
The Bill specifies that payroll taxes and a surcharge on personal income tax could be
considered as sources. Such taxes would need to be determined by National Treasury. At the
presentation of the Bill, the Minister of Health indicated that no tax changes are envisaged over
the 3 year period of the current Medium Term Expenditure Framework. In our view, there are
material challenges to raising new revenues to supplement the current government budget for
healthcare, and this is unlikely to change in the foreseeable future. This suggests that the
rollout of the NHI will be slow unless there is a substantial improvement in the country’s
economic prospects.
The role of private hospitals and health professionals
The Bill envisages that the NHI Fund will contract on a voluntary basis with private hospitals
and health professionals to supplement the current public sector delivery system. For the
foreseeable future, we expect that the NHI will contract with some GPs to supplement primary
care services, and also that it will contract for certain high priority services to address specific
gaps in public sector provision. If this is achieved, it will already be a significant step forward.
Beyond that, we expect that the vast majority of NHI services will continue to be delivered by
public sector clinics and hospitals, and that private hospitals, specialists and other providers
will continue to be funded by medical schemes.
South Africa is blessed with a committed, highly skilled and world-class healthcare professional
community. These professionals work hard, provide excellent care and are committed to our
country. We will work hard to defend their rights to fair remuneration, to an optimal working
environment that promotes sustainability and ideal patient care, and to retaining and supporting
them within our broader healthcare system.
References:
https://www.mckinsey.com/industries/healthcare/our-insights/how-discovery-keeps-innovating
https://businesstech.co.za/news/business-opinion/693807/nhi-will-leave-everyone-in-south-africa-worse-off-ceo/
https://www.discovery.co.za/corporate/health-nhi-the-role-of-medical-schemes
https://www.discovery.co.za/bank/news-bcg-future-of-retail-banking-in-south-africa
https://www.pwc.co.za/en/assets/pdf/strategyand-digital-disruption-in-sa-banking-sector.pdf
https://www.discovery.co.za/bank/news-bcg-future-of-retail-banking-in-south-africa
https://www.discovery.co.za/assets/discoverycoza/corporate/investor-relations/2022/presentation-2022.pdf
https://www.discovery.co.za/assets/discoverycoza/corporate/investor-relations/2022/results-booklet-fy-2022.pdf
https://www.reuters.com/article/discovery-results-idUSL5N11G2KL20150910#wrDzgVOkjuoWMkSi.97
https://businesstech.co.za/news/banking/284158/discovery-bank-to-launch-in-march-2019-heres-what-you-need-to-know/