Registered users can save articles to their personal articles list. Login here or sign up here

Discovery to enter banking sector

With a top-end client base, the big banks should be nervous.

Since its inception Discovery management has said it will not enter a market unless it can disrupt that market and add value in a meaningful way.

Discovery Health with its Vitality platform is the standout example, but the same can also be said of Discovery Life, Invest, Insure and Card. Now the company, which operates in 16 countries and serves 10 million clients, has announced it will enter the banking market next year.

CEO Adrian Gore made the announcement during the presentation of the group’s annual results, which provided tangible evidence that this is a group on the move.

In the year ended June 30 2017, core new business annualised premium income of the group increased by 16% to R16.9 billion, while normalised profit from operations increased by 10% to R7.0 billion. Diluted earnings per share rose 20% to 683.6c.

Discovery share price

With innovation at its core, Discovery invested 8% of earnings, or R577 million in new initiatives. This is over and above the R2 billion invested in the establishment of the banking platform, as well as the launch of long-term investment products in the UK market; the use of the Vitalitydrive model to disrupt the commercial insurance industry and the establishment of a platform from which to extend Discovery Invest’s retirement offering, all of which will launch in 2018.

“If I was in banking I would be nervous,” says independent analyst Chris Gilmour. “Their track record shows that when they disrupt, they do so profoundly. Just look at Discovery Invest. That started eight years ago and it now has R69 billion in assets under management, without a single portfolio manager in sight. And the same goes for Discovery Life where they have a marketshare of 29% of the retail affluent protection segment.

“A lot [of Discovery’s success] is due to Vitality,” he adds. “They use the information Vitality generates to truly understand their members. They know their customers and understand their lifestyles. The next logical step is to open a bank.”

Discovery has always placed an emphasis on science, technology and data. Specifically its Global Vitality Network – the central insurance platform that advances the Vitality Shared-Value Insurance model – has developed new IP in product, programme, and partnership constructs. For example, work is underway with Columbia University to promote healthy longevity at older ages by developing age-specific preventive recommendations.

Further, the Global Vitality Network has invested in a centralised data capability that houses the richest set of mortality, morbidity, and engagement data globally (40 million life years of behaviour-linked data), which is used to optimise value-creation in pricing and product design.

“This is key to the growth of the business model,” adds Gilmour. “This is not a company that grows by acquisition, the focus is on organic growth and partnerships.”

Discovery’s mature businesses (Health, Life, Invest and Vitality) grew operating profits by about 10% and in the case of Vitality by 89%. However the emerging businesses of Discovery Insure, Vitality Group (which expanded into four new markets) and Ping An Health in China showed extraordinary growth in operating profit of 86%, 39% and 66% respectively.

By far the most impressive growth was from the Ping An Health joint venture. Its membership grew by 428% to 3.7 million; its annualised new business net premium increased 103% to R800 million, year-on-year, with operating profit in rand terms increasing by 66%. “The private health insurance market in China is just starting to emerge,” says Gore. “And Ping An Health has more members than Discovery Health. We think private health insurance is going to be big in the Chinese financial services industry, but we are trying not to create ridiculous expectations.”

Overall this is a very good result, says Gilmour. “There are always people trying to find chinks in the armour. If I had to do that I would point to Vitality in the UK, where performance was sluggish. But even there, where people do not change easily, they are gaining traction.”

A dividend of 98c was declared, brining the total dividend for the year to 186c.

Click below to listen to Ryk van Niekerk and Adrian Gore discuss the company’s annual results:

AUTHOR PROFILE

COMMENTS   15

To comment, you must be registered and logged in.

LOGIN HERE

Don't have an account?
Sign up for FREE

Good for them, but I want REAL medical aid. I’ve been with Discovery right from the start, but I’m seriously looking for something else come end this year. So tired of paying out of my pocket for doctors and pharmacies from round June every year.

Hi JapieM
The problem is not with your medical aid- it is with the Doctors overcharging! The simple fact of the matter is that they all belong to the Medical Council(?) and all agree annually with their Governing Board what fee they are prepared to work for the following years. They then agree with all the medical schemes in South Africa but then charge far more than agreed. They will tell you that the medical aid scheme you belong too doe snot pay the account in full- and that is true because they are charging more than they have agreed too! Perhaps its time to rather ask you Doctor why he charges more than he should/

From what I’ve heard doctors (especially specialists) are paying HUGE sums for insurance which they have to collect from someone – like you and me.

In what free market, non-communist, anti-EFF, world is it ever correct to dictate what an individual can charge? Let’s rather have a supply conversation, a demand side management conversation and a transparency about fee conversation to have market forces fix the issue.

But to dictate rates, thats just wrong

Japie, i’m a financial advisor for Discovery. There are 30 plus options available, and from your response it is clear that you are on the wrong option. Have you discussed this with your financial advisor as yet. Annually, between October and December, members are allowed to make option changes. All clients have different needs, and those needs are supposed to be discussed with the help of a easy to understand analysis of needs, price, benefits etc.

Shout if you need help please – steven.thyssen@attooh.co.za

Regards,
Steven

Switch to a hospital plan and start your own savings acct for day to day med expenses. Of course it also helps to eat right and exercise regularly.

Don’t worry the NHI will solve all your medical aid problems. Ha ha ha.

Well then, stop the promises and tell us what you are going to offer as an incentive to move to “Discovery Bank”.
The Headline of this article dangles the carrot but the article tells us nothing.

Makes sense why Vitality is making a profit.
The membership fees for vitality is about R300 per month.
Charging a fee close to personal banking for a loyalty scheme.
Not sure if people are getting value of more than R300 per month or if they haven’t realized that membership fees have increased.

Very true, I cancelled my Vitality as it is total rip off, no VALUE what so ever unless you really enjoy some useless free smoothie that you have to spend few good Rand to drive to the nearest one that offers this free so called treat !

Is Discovery disclosing how many customers are leaving this totally useless Vitality ?? I left 4 months ago. It costs me about R 3600/y and received about R 215/y in discount on so called healthy groceries. Unless one goes to gym 7 days per week Vitality is a total rip off !I was going 2x week to gym and it was not enough and my gym fees sponsored by Vitality has increased 100% ! So my total costs were R 600/m. Now I go to Viva gym for R249/m without worrying about gym increase if I cant go.South African are very naive people if they don’t calculate the real Vitality costs.

I have maintained for years that Vitality is a rip off. Saffers are completely unable to do the maths on how this is not benefiting them. Much like their cell phone contracts.
Vitality is a massive cash cow for Discovery. It’s a license to print money and drops straight to the bottom line. Remember, your premiums pay for any medical costs you have. Vitality ‘membership fees’ are a totally separate revenue stream, one that you cannot ever ‘claim back’. It’s pure genius, only benefiting one party, and it ain’t you. This little scam has netted Discovery billions over the years, literally. Ironically, the healthier you are, the less you will claim from the actual medical scheme as well. Unclaimed premiums that either cover some other sicko’s bills or simply adds to their cash pile.

One thing that Discovery does superbly is market themselves!

“Top end of the market” Ag, asseblief. Discovery Mediese Fonds is baie billik, en die administrasie glad nie sleg nie. Discovery Lewens is egter duur as jy nie aan Vitality behoort nie, en selfs dan moet jy jou huiswerk doen. Discovery Insure sal ek glad nie aanbeveel nie: Ek is tot dubbeld wat ek nou betaal gekwoteer ten spyte daarvan dat ek amper ‘n dekade en ‘n half eisvry is. Vitality is oor die laaste 18 maande so afgewater, dat ek sterk oorweeg om te kanselleer. ‘n Mens kan eerder die R220 in ‘n uittree-annuiteit sit. En dan, die “top end of the market” Discovery Card. Ek weet nie waar hulle kliënte gaan kry met hulle regiede kredietverskaffingsbeleid nie. Hulle bied verder geen inflasie verhogings van perke aan nie, so na 10 jaar is my limiet ‘n tiende werd van wat dit was in 2007, om nie te praat van fooie en die rentekoerse nie – van die HOOGSTE in die mark.

It will not be difficult to disrupt the big banks. The key is finding and employing staff who are qualified for the job, are enthusiastic about the job, can think on their feet, will listen to the client,can understand what the client wants and needs and is committed to putting the client first. Do this Discovery and the big 4 will become a big zero.

Load All 15 Comments
End of comments.

LATEST CURRENCIES  

USD / ZAR
GBP / ZAR
EUR / ZAR

Podcasts

GO TO SHOP CART

Follow us:

Search Articles:Advanced Search
Click a Company:
server: 172.17.0.2