Business in Africa has never been rougher, drop your guard for a second and chances are the new kid on the block will poleaxe you with a right hook. Just ask entrepreneur Adrian Gore, the founder of the $6.5-billion Discovery Limited, who built his empire by turning the health insurance industry on its head.
Now Gore has set his right hook on the banking industry with the launch of a $105-million bank. Just another day in the life of a man who takes a look at a market to see how he can disrupt it.
“It’s been a remarkable 25 years. It doesn’t feel like it. If you build a business and find the organization ages better than you do, then Discovery feels brand new… We are always immersed. No one is sitting here in the boardroom drinking cognac thinking about the past. We are humble because we are building, it’s like day one here,” says Gore.
Gore is seen as an innovator in Africa with plenty to say. This vision has seen the self-taught entrepreneur, and actuary by profession, work his way to a $522 million fortune. It’s a far cry from 1992 when Gore was the hungry new kid on the block tying on his gloves in the far corner.
“It started out as this anecdotally opportunistic idea, and as soon as we did it we knew, s*** this is big. This has got great potential.”
The key to Gore’s success was the idea to reward people for looking after their bodies.
“Health and life insurance are typically grudge purchases. Our fundamental success in this market has been making health insurance sexy, cool, accessible and different,” says Gore.
These days, one in every three South Africans put their money down in the hope of reward. It’s made Discovery the largest supplier of medical aid in the country.
This is just the beginning of a global network that has expanded into 16 countries, including the United Kingdom, United States, Singapore and Australia. Ultimately it leads to one thing: making 10 million people healthier by 2018.
“I believe that it is often during moments of difficulty that the best ideas emerge. Times of crisis can often lead to progress, and hard economic times can be a catalyst for positive change. When we started Discovery in 1992, the country was in a state of political turmoil. We saw an opportunity to create a business that could positively impact the healthcare system and we found a way to move forward.”
BANKING ON DISRUPTION
If you want to bank on something, it should be on Discovery disrupting business. Now Gore believes he can do the same in banking.
“We don’t disrupt for the sake of it. We don’t sit and think ‘how do you disrupt?’ Most markets are not based on behavioral issues. They are not based on the model we’ve developed, so when we come in and we do it right it, by nature, is disruptive,” says Gore.
In 25 years, Discovery’s share price on the largest bourse in Africa, the Johannesburg Stock Exchange, has gone from R10 ($0.70) to almost R150 ($10.40) – an inflow of shareholders’ money that is helping Discovery Bank Limited take advantage of its new banking license. It could be open as early next year pending the Competition Commission’s approval.
“We’ve never made an acquisition here, everything here has been organic. We’ll probably invest, in total, by the launch, R1.5 billion ($105 million). It’s a considerable build,” says Gore.
In Africa’s economically challenging times, everyone is looking for better ways to save their hard-earned bucks.
“We’ve been working on it for two years now, with a good team and very strong people… it’s not an easy thing to do. I’m not sure there is an excellent time to do it. I think it will take a decade long to develop something that has materiality in that space… We came to the conclusion, given our technology and being given the ability to start our own legacy, we said let’s start it slower and proper.”
Gore is playing his cards close to his chest. He has said little about how he intends to integrate banking with his other businesses. What we do know is that he will set his sights on the rising middle class.
At the center of it all is his team of Apple-watch-wielding actuaries, who will also need to come up with something so that the business can stand out in the crowd. It’s a tough crowd too. The territory is already held by heavyweight banks who’ve been there for generations, like Standard Bank, Absa, FNB, Nedbank, and Investec. They also want to modernize and make use of big data.
“We’re not going into a weak market where the banks are useless, that they need to be shaken up. I don’t believe that at all. My sense, anecdotally, I think they are worried. I think they think we will be disruptive. I think they have a healthy respect for us. But there is no panic here. No hubris here,” says Gore.
“We’re going to target the mass affluent. We’re going where our customers are. So it’s pretty broad. It goes from a fairly low LSM to a high one. Our approach is not to focus on [the banks]. We need to focus on our customers.”
The bank has got a lot of people talking. As South Africa grapples with its rocky economy, that faces possible ratings downgrades which could send stock prices tumbling, the markets are looking for something to shake things up, says Michael Treherne, a portfolio manager at Vestact.
“The banking sector is ready for disruption. Capitec has done this for the lower LSM customer base and Discovery will be looking to use their huge database on behavior traits to disrupt the top-end LSM. As the saying goes though, the proof is in the pudding,” says Treherne.
“They offer a product that is unique globally. Their massive database is the moat between them and competitors. Also, their white-labelling strategy of selling their intellectual property and not needing to put in capital upfront means they can grow very quickly.”
Over the long term, Treherne believes Discovery will be able to weather the storm.
Another market commentator, Chantal Marx, Head of Research at FNB Securities, also backs the company.
“[Gore] is the ideal guy to be at the front of the businesses challenging the status quo and changing the face of insurance…They have revolutionized the way companies see their clients. I think they will compete with banks like Investec and the private banking offerings by the big four. If they can get people to be sticky and put their entire financial portfolio together, it’s where Discovery will make their money.”
The only problem, Marx says, is Discovery is seen as pricey.
“The expectation of growth relative to someone like Sanlam doesn’t justify the premium. But I think investors are willing to pay a little bit more for their innovation slant.”
Meanwhile, Gore backs himself by having no investments other than his shares in Discovery.
From a young age, Gore learned business by doing.
“Ironically [my father] was a tobacconist wholesaler. He would sell cigarettes and candies between wholesalers and stores. I remember as a kid having to pack cigarettes, I remember all the brands, Lexington and Rothmans, and having to take them out to the café owners. It was actually an interesting business because as time went on the margins got squeezed and wholesalers started supplying to businesses directly.”
“[My father] is essentially an academic at heart. He hated business. When he retired he went and did a bunch of degrees. He never stopped learning, so I grew up with a belief that knowledge and learning is more important than anything.”
From his mother, Gore learned to push himself towards the intellectual forefront. He grew up in a household where discussions around the dinner table involved questioning the ‘way things are’.
“You never kind of accepted that that was how it is and that’s the way it’s expected to be. In my own journey, my own career, it’s been one of my biggest assets; don’t take things at face value. I just don’t.”
“My parents are not essentially commercial people. They are not excited by scale or profit. They are excited by values and doing good,” says Gore.
BUILDING ON BEHAVIOUR CHANGE
Building healthy lifestyles has been the key to Discovery’s success. Under Vitality’s Shared-Value Insurance model, Discovery rewards clients that regularly go to the gym, eat their vegetables and do their medical checkups. Clients are then given free smoothies and discounts on healthy food, cheap flights, and Apple watches.
The model was born in 1992, when the Health and Racquet Group, who later became Virgin Active, approached Gore to see if they could cross-sell into their base. Gore and his team came back and said why don’t we give people health miles and reward them for living healthier lifestyles with discounted memberships.
“Discovery’s entire investment case is premised on that one brilliant original idea which is Vitality. If you look at Vitality, what it basically did was revolutionize the way insurers look at their clients and the way they made risk on their book… What Vitality did is essentially place the risk management outside of the company and what the actuaries do and put it in the hands of the insurers they are insuring,” says Marx.
“Suddenly they have a better persistence; people aren’t lapsing their policies or moving around. They’ve got sticky clientele who are living longer, happier lives. So, the amount of claims they have to pay out are less on the medical health side and on the life insurance side the longer someone stays alive the better it is for the company, because they can continue to invest and build on their investments.”
Two aspects enabled the success of the model, says Gore. The first is technology, the second is understanding risk is behavioral.
What Vitality has become is unexpected. Gore says it is now the world’s largest scientific, incentive-based wellness solution – this is all thanks to terabytes of data its users send every time they update their apps.
Vitality Active Rewards has found that those that use the app increase their exercise levels on average by 24%, and those using Apple Watch increase their activity sustainably by an average of 81%.
“When I started out, companies had mission statements like ‘we endeavor to make shareholders rich’. Our idea was of making people healthier. We were seen as being mad. But today we see now, since 2008, a sense of purpose is what appeals to people,” says Gore.
“In our case, there is a massive spend on technology. A lot of it is on enterprise stuff, the core. In the case of Vitality we have invested hugely in technology to be able to globalize it.”
Utilizing innovative technology has become the forte of the Discovery team. Underpinning this is using big data, which Gore admits to being skeptical about.
“I don’t think data in and of itself is this nirvana. I mean using A.I. and machine learning, it’s powerful stuff, but it’s the application. The shared-value model, I think, is where we are powerful. I think it’s the DNA and it understanding it through the data, and sharing how people respond is a very powerful thing,” says Gore.
“A.I., without romanticizing it too much, has given us the ability to crunch the data, without upsetting the hypothesis. Overseas we are learning more and more how to use it. In the UK we are using it to help with our pricing,” says Gore.
In a world where Africa is China’s happy hunting investment ground, Gore is heading the hunt in the opposite direction. With 3.7 million customers in China, Discovery has a 25% stake in Ping An Health Insurance, the country’s largest private health insurer; 2016 saw membership grow by 428%.
“The growth is staggering. It’s something we’ve never seen before. I still think it’s early. These things take seven to 10 years. It takes time. Ping An’s relationship is seven years long, and it’s beginning to expand rapidly. Literally the last years, after we figured out the distribution channels, it’s been hugely successful,” says Gore.
“This is a massive industry in China. Ping An itself is the gold standard in China. Today it’s the most powerful and biggest insurer in the world.”
Gore’s confidence stems from the Chinese government’s plan to introduce privatized health reforms.
“We’ve typically gone into developed markets that have been commoditized and disrupted them; it’s our natural target. It’s slower going, it takes time. Ping An is more pioneering, it’s a market that’s growing, the middle class is emerging. Healthcare is becoming a bigger and bigger issue. So I hope we can continue that trend.”
In just 12 months Vitality Active Rewards, with Ping An Life, has reached 2.4 million members. To give a sense of scale, Discovery now has more people signed up in China than in South Africa.
“China remains a huge growth market, with the estimated total healthcare spend expected to rise by over 90% by 2020. Private healthcare spend is expected to grow even stronger over this period,” says Gore.
Discovery has found it difficult to take on the rest of Africa. This is mainly due to the lack of infrastructure and established private healthcare.
“The insurance space in Africa is very underdeveloped and your insurable population is small relative to the population at whole. You need to be careful about which markets you are entering in. For Discovery, it makes much more sense to invest in developed markets where you have broadband capability and most people have a smart device so that you can afford a wearable,” says Marx.
E-HEALTH LEAPFROG AND ITS CROAK
eHealth, could be the massive opportunity where private infrastructure can help solve Africa’s shortage of doctors. Africa, Gore believes, can short-circuit the shortage of doctors and expensive technology by supplementing them with eHealth developers working on apps to treat patients.
“I think we are sitting on the cusp of eHealth starting to do stuff. Through the smartwatch being able to track things more accurately, there is a whole world of stuff that’s happening,” says Gore.
Disruption has the ability to leapfrog older technologies; especially when it comes to cellphone reach in Africa. Those with keen eyes of innovation can spot ideas and gaps in the market, and create unique solutions to Africa’s needs, while at the same time being exportable.
“The interesting thing in healthcare is we haven’t seen technology bring prices down, in fact we’ve seen prices go up. A new biological drug is discovered and the prices go up… Everyone is carrying smartphones around. The ability to give care out on this basic level is an amazing opportunity,” says Gore.
Of course the health industry in his own country faces its unique challenges. The private healthcare industry is anxious to resolve the uncertainty of the South African government’s National Health Insurance (NHI) and its impact on the private sector.
The government claims 80% of South Africa’s population, that’s 40 million people, can’t afford medical aid. Their reality is waiting in massive queues from sunrise to sunset in the hope of seeing a doctor. All this while the other 20% of the people, who can afford medical aid, are treated by 70% of the country’s doctors.
“From our perspective, getting an NHI that bridges the gap and does everything that it needs is crucial. We’ve been involved where we can. I am hoping we can overcome the chasms that are between public and private healthcare.”
Many fear the NHI could be the tipping point for the country’s health system, forcing doctors to emigrate.
“It’s in a complex place at the moment, while the policy details are set and we are going along a process that is right. The details are not clear. I think funding issues are going to be critical. We don’t have the money to fund the kind of services that we need,” says Gore.
Something that could even disrupt the disruptor.
‘You Could Immediately See This Guy Was Different’
In 1992, Adrian Gore raised seed funding from Laurie Dippenaar, the cofounder of FirstRand, and founded the South African medical insurer after years of working with Liberty Life. Dippenaar, who is on the FORBES list of the 40 Richest Africans, was the man who gave Gore his shot.
“You could immediately see this guy was different. He was not the typical chartered accountant nerdy smart. You could see he had intelligence but he also had business sense, all the qualities that make you a success. I think he is actually one of the smartest businesspeople I have ever met,” says Dippenaar.
According to Dippenaar, Gore’s first pitch didn’t go well. His life insurance scheme sounded too much like all the others.
“To this day he says I got it wrong. A year later he comes up and says he’s got something completely different. From life insurance he had gone to a health insurance. He started to describe what he had in mind and I could immediately see he was onto something.”
This something was Discovery.
“When he described that medical savings account, it was a pioneer move in South Africa. I remembered when I was a bachelor and paying all these premiums for health insurance. You are young and healthy you don’t need to claim. All you do is pay premiums. Here was a product where you could carry forward some of the premiums if you were not claiming. In theory you could get into a situation where you didn’t have any premiums to pay,” says Dippenaar.
Gore left his job and Dippenaar gave him three months to draw up a business plan, in Dippenaar’s own offices.
“He never had any hesitation. He came up with the numbers. We liked it. So we backed him,” he says.
The rest is history.