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Discovery and AIA to launch health insurtech JV in Asia

Much of the technology here will be lifted and shifted in different ways. It’s not yet clear how many will go across from Discovery Health into the Amplify Health entity in Asia: CEO Adrian Gore.

FIFI PETERS: DealNews announced today that Discovery is making a play at Asia’s fast-growing insurance technology [insurtech] sector by establishing a new business called Amplify Health, which it will manage in partnership with the its existing partner, the AIA Group.

We have Discovery CEO Adrian Gore on the Market Update. Adrian, thanks so much for your time. It is great to catch up with you this year. When I saw this, I asked myself why it was necessary to set up a new company to roll out this new offering, this insurtech offering that you are proposing, as opposed to just building on the existing infrastructure setup that you have and offering insurtech from inside the business.

ADRIAN GORE: Fifi, thanks for having me. It’s a great question. The existing relationship is around the use of Vitality in Asia. AIA is a massive pan-Asian insurer, and we’ve been very successful with them over the last decade.

The amplified deal brings together, I think, that relationship into a much, much bigger play. It’s not a contractual relationship, it’s an entity of which they will own 75%, and we’ll own 25%. It requires us putting a lot of people into it, uplifting and shifting our entire kind of Discovery Health technology stack into Amplify Health.

It’s a dramatically bigger-scale deal, and therefore the existing contractual relationship was not the right platform. In fact, it’s the opposite way around. Vitality is being reversed into Amplify Health. So Amplify Health will be our kind of primary Asian health play, together with AIA.

FIFI PETERS: Can you give us the scale or a sense of just how big an opportunity this is for the group in terms of the demographics and the ways that consumers are choosing to consume health and insurance services, especially given the fact that we are excluded or taken out of this Asian pie – countries like China, Hong Kong and Macau.

ADRIAN GORE: We report in China for us while they’re out of the structures that we have to deal with. We have a partnership with Ping An Health. We own 25% of Ping An Health’s equity in those markets, so that’s why that is carved out.

But Asia is probably the most exciting and biggest potential health insurance market. It’s a market where there are over 2.5 billion people in the middle class. As you know, as incomes rise people demand more healthcare, so there is a really massive, massive market that is expected to be about $4 trillion by 2030. The fundamentals of the Asian market are quite remarkable. At the same time there’s massive digital adoption in Asia, so there really is a huge health-insurance market in Asia. AIA is a very big player.

The first port of call for our Amplify Health with the AIA will be to service and to back and manage the existing health-insurance businesses. That’s what I think provides a very big scale kind of from the get-go. But I think the intention of Amplify Health is to move into helping other players, big corporates using our data and segmentation capabilities to build networks. So I think the success of Discovery Health and the sophistication of the offering put into the Asian market with a partner like AIA is quite remarkable. This is something we’ve been building up for the past 18 months and we are very excited by the launch today.

FIFI PETERS: What we have also seen throughout this pandemic is that insurtech is one of those economies that we spoke about before, when we were talking about the fourth industrial revolution in terms of these new industries that would emerge. We’ve seen quite a number of players going into insurtech, which just brings me to my next question around competition and exactly what Amplify Health will do and can do to set itself apart from existing players that are already doing what you’re trying to do.

ADRIAN GORE: Look, there’s a huge amount of competition in the marketplace. I think, ignoring the ……4:21 insurtech, I think what Amplify Health is doing is – it’s a non-insurance entity – not taking underwriting risk and therefore it doesn’t need regulatory capital. It’s about technology, it’s about managing healthcare. It’s about some of the block-and-tackle of paying claims. It’s not just all ‘hifalutin tech’, it’s about doing a lot of stuff in managing healthcare.

I think the important point is – and I’m proud as a South African – if you look at Discovery Health it is a world leader in many aspects of health insurance. I think the conviction of AIA that our technology capability will offer a very competitive opportunity is something [that will cement] ……4:55 the whole deal.

There are competitors. I think what a AIA is doing is pretty visionary, bringing in a very sophisticated technology capability into a market that is at this stage massive but quite basic. So there will be competitors, but we’ve been there for a decade with them. We’re pretty confident of our ability to get real traction and add value.

FIFI PETERS: Can we talk numbers? How much is it going to cost you to realise this dream and this vision for Amplify Health?

ADRIAN GORE: Well, importantly AIA will fund effectively the first US $800 million of growth capital if it is needed. We own 25% of Amplify Health. The first $200 million, which would be our contribution if that’s required, would be funded by AIA. So that is part of the structure. Actually that kind of capital should be enough to certainly get Amplify to scale and to do some acquisitions if need be. I don’t see us needing much capital unless the growth opportunities are much, much bigger than we plan.

So this is not a capital-heavy endeavour for us, it’s lifting our technology. We’ll probably transfer a hundred or so people into Amplify Health from Discovery. So there’s a lot of expertise that’s going into it. But from a capital perspective, from a numbers perspective it should not be significant.

FIFI PETERS: Oh, is this this hundred or so people from the South African business or people who are in South Africa presently going over to Asia?.

ADRIAN GORE: Probably not physically. A lot of the technology is built and resides here. It will be lifted and shifted in different ways. It’s not clear that many will go across physically, but many will go across from Discovery Health into the Amplify Health entity. I think that’s an important piece. We are exporting real subject matter expertise out of Discovery.

FIFI PETERS: What about the income that you may get from this, and what this means for shareholders, because you cite a number of income streams that this deal will give the group – additional income from the value of IP, additional fees to be paid by the AIA Group. Can you give us a sense of what your shareholders can expect in terms of value and how soon they could realise the value from this deal?

ADRIAN GORE: Currently AIA pays us fees based on the Vitality construct every year, and those fees are quite substantial. I’m not sure we disclose them exactly, but they are substantial millions of dollars that will continue to flow to Discovery, and those will be supplemented by some of the fees from Amplify.

In addition, there will be considerable fees paid directly to Discovery from AIA for the current capital business that Amplify will manage. But then the real value hopefully is in the shareholding we have with Amplify. So Amplify should become a bigger and bigger company of which returning 5% shareholders, ultimately shareholders here of Discovery, will own that equity. And that’s the real impetus behind the deal.

We haven’t disclosed numbers but, together with AIA, the hope for the enterprise to be a multi-billion dollar capability over time; that’s the intention, that will take time. We’ve learned it takes time to build something on scale. I think both organisations have the conviction about what we can achieve.

FIFI PETERS: Just lastly, I see that this deal is subject to some conditions and approvals. One is from the South African Reserve Bank. Can you just give us a sense of what they need to sign off here, and within what time period, the timeline, that you’re hoping to get the stamp of approval from the Sarb?

ADRIAN GORE: There’s a bunch of contractual structures and good governance that the Sarb has to prove. We don’t see dramatic issues of complexity; there are not massive amounts of capital going out and so forth. But the Sarb must do what they do. I can’t comment on it, but I don’t see dramatic difficulties. This is a fairly straightforward transaction; whatever the Sarb decides we will comply with, I assure you.

FIFI PETERS: All right, Adrian. Thanks so much for your time. We’ll leave it there. Adrian Gore is the CEO of Discovery.

 

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