HILTON TARRANT: Health and life insurer and financial services business, Discovery, today reporting results for the six months to December 31. Normalised headline earnings up 22%, new business up 19%, embedded value up 19% with R1.3bn in cash generated. Adrian Gore is chief executive of Discovery. Adrian, if we look across the different businesses – health, life, invest, insure, PruHealth, PruProtect, all of these exceeded expectation and you make those points in today’s announcement, a very good set of numbers.
ADRIAN GORE: I think so, I think the numbers are robust, for me what was quite notable was we’re taking a much more disciplined approach to using the Discovery model of engaging people and incentivising to be healthier, etc and using those benefits into the actual insurance models. I think in addition to the numbers I think the actual flow of the model throughout all of our businesses was particularly pleasing over the period.
HILTON TARRANT: If everything is firing on all cylinders, which it does seem to be, what’s got your attention at the moment?
ADRIAN GORE: I think things are going directionally really well but Discovery is always in a start-up phase, so Discover Insure that I think had a brilliant six months, it has to get to profitability and scale, so we’re pushing hard on that. At the same time we’re working in Asia with AIA, with Ping An that stuff needs scale, so there’s a lot going on. I also think that often businesses in a sense don’t realise the importance of the incumbents that are going well, so we’re pushing hard in health and life at the same time. So I think we’re bad priority setters, we’re pushing on everything.
HILTON TARRANT: You mentioned health there, this is perhaps your most mature business, the founding business of Discovery, if anything new business accelerating in this period, which is astonishing, given the high base.
ADRIAN GORE: Ja, I think Discovery Health had a remarkable calendar year because the medical scheme, which is a separate entity, has a calendar year reporting cycle. I think in every respect the loss ratio, customer service, everything has gone incredibly well and Discovery Health has a massive social responsibility of keeping healthcare affordable. So it’s an endless battle and the only antidote is to be excellent. We’ve got a lot to do there, a lot to meet customer needs but I do think that it was a very, very good period.
HILTON TARRANT: It’s been very interesting from the sidelines and as a customer as well to see the maturation of Vitality over the past few years and even in these six months. The model keeps maturing, keeps getting better and keeps making your customers like me healthier.
ADRIAN GORE: Ja, ja, it really has a kind of tipping point effect and I think certainly in this market we’ve been very successful. The transportation of it into the UK, especially through the life insurance, through PruProtect, we used a very disciplined model out of Discovery Life and the receptivity there was absolutely tremendous. So what has really driven PruProtect over the last two or three months has been Vitality. So I agree, I think it has matured from something that I think started out as a series of incentives to get people healthy into a very powerful rating methodology and a fairly profound tool.
HILTON TARRANT: You spoke a lot this morning about there being this repeatable model and you’ve proved that to some extent. Overseas in the UK, you’re starting to prove that in Asia as well, is that your focus as chief executive in the short to medium term, given that the other businesses have their own heads and run those businesses operationally.
ADRIAN GORE: I’m quite an operational CEO, so I’m quite involved across a number of…I kind of deep dive at different points in time but I do think one of my key roles is driving the integrity of the model and making sure that it’s deployed in a sound way that’s in line with our values and principles, so I do spend a lot of time on trying to make sure and paving the way for the models and values of the organisation.
HILTON TARRANT: You’ve almost got the core of a platform here where you would be able to – and you are to some extent doing this in Asia – being able to launch in a territory with a partner, they plug into your IP and you make a business out of it.
ADRIAN GORE: To an extent that’s exactly the AIA model, they’re a massive player across Asia, so we’ve got two pilot tests to an extent in Australia and Sydney, two of their markets, and that’s exactly what we’re doing, the idea is to build out the Vitality chassis across many markets and to plug the Discovery Life model into their base, so to speak. It is complex because Vitality is quite a physical product, you’ve actually got to build up the networks and the systems. But we’ve developed in addition to the actuarial clinical model the technology is not quite in a black box that you can just put in place but it is actually very transportable. So it does offer quite an interesting way to expand into markets where I don’t believe we would ever be the underlying insurer.
HILTON TARRANT: Is engagement and driving user engagement the most difficult thing when it comes to something like Vitality?
ADRIAN GORE: It’s another area where I think we’re learning tools with how to do that. In the case of the life insurance, take Discovery Life, the financial incentives around cheaper premiums and cashbacks are so strong that the levels of engagement tend to be absolutely brilliant. In other areas, in health insurance where people often don’t know about it and it’s harder to incentivise clear benefits then you’ve got to reach out to them but I actually see going forward one of the core competencies we have to build up is the ability to pull certain levers that drive engagement, I think it’s crucial.
HILTON TARRANT: You mentioned Insure earlier on, more than 60 000 cars now covered with Insure and this really one of the focuses or one of the main focuses here in South Africa to get this business to scale, how big are you compared to what’s in the market at the moment?
ADRIAN GORE: Well, listen, in terms of the actual book we’re pretty small, so the potential for growth is dramatic but in terms of new business we estimate we’re probably first or second or third in terms of scale of new business. So we’re really making very good inroads into it. The receptivity to the idea of driving better has been very good, so we kind of morphed the core purpose of Discovery from making people healthier into driving better because one of the things when you drive better is you limit mortality risk. So that message, which we thought was a bit of a leap from what the market currently does, competing on price, we thought was one of the hypothesis of whether the business would work but the receptivity has been brilliant.
HILTON TARRANT: And we’re not a nation of good drivers are we?
ADRIAN GORE: Well, it suffers from the same behavioural bias of anywhere in the world, people tend to think they’re healthier than they are and they tend to think they drive better than they do. So we’re not trying to reveal a reality check, we’re trying to nudge them into driving better and the responses to that is remarkable. One of the by-products of this was that good drivers suffer less hail damage, it sounds a bit bizarre but it turns out that people who are careful about their health are careful about their driving, are careful about other risks. So these things all tend to be one directional and I think that’s the power of a model.
HILTON TARRANT: And in this business you’re really at the start as far as technological innovation, despite being so far ahead of your competitors, the possibilities in this business are endless.
ADRIAN GORE: I agree, if you look at the Consumer Electronics Show in the US just a few months ago one of the biggest phases in everything is this idea of wearable devices, FitBits and…so Vitality has to be clear as to what we really do, we’re a chassis upon which these things sit, we’re a technology chassis to an extent and we translate that into insurance systems. So the technology strategy is absolutely crucial that we know where we should spend and where we shouldn’t. So things like FitBits and Jawbones and that kind of stuff we link with them, we don’t replicate them. So it is a technology business and I do think it’s embryonic.
HILTON TARRANT: Adrian, the AIA pilot, you hinted at it earlier, you started that pilot in Singapore, added Australia, how is it going?
ADRIAN GORE: It’s very early, we had two launches last year, we’re kind of learning from them. In Australia Sydney 200 brokers of AIA, I think the rest [UNCLEAR] was good, there are a lot of good learnings. I think the real launches are I think Singapore is early April or thereabout and I think Australia is probably March, so we’ll see when they hit the street. These things take time, it takes time to get the market right. The intellectual process we’ve been through with AIA I think is very strong, so I think there’s a deep understanding of what we need to do and the Discovery Life model is very compelling. So we remain very hopeful but a lot of work to be done.
HILTON TARRANT: Those to come in this second six months, the rest of the business, more of the same?
ADRIAN GORE: Yes to an extent, I think in every one of our businesses there are real big plans to push forward but I think that if we can keep the process going as it is I’d be very, very pleased.
HILTON TARRANT: Adrian Gore, the chief executive of Discovery.