The early 1990s were a period of remarkable dynamism in South Africa. Nelson Mandela was released from prison at the beginning of the decade, and apartheid would come to an end a few years after that. Unfortunately, the country had a well above average rate of disease and insufficient numbers of doctors to treat the populace.
It was during this period with these factors in place that Discovery Limited was born. South African entrepreneur, Adrian Gore, who has a background in actuarial science, developed Discovery Limited as an insurance company with the vision of mixing complex actuarial principles with a desire to make people healthier with incentives. Gore was influenced by behavioral economists such as Daniel Kahneman well before that field of economics or Kahneman were household names.
Gore noted through scientific research that people who are disciplined and who can avoid instant gratification in managing their health tend to act the same way with their money. In other words, healthier customers are better customers.
Gore has since expanded Disovery into broader financial services categories, and the company has expanded to 23 countries. There are three factors that that have driven the company’s growth: the understanding of behavior, technology, and purpose. Gore describes each of the three in detail herein.
Gore’s vision is compelling, and the results speak for themselves. As Discovery’s success grows, it is likely more companies will adopt similar growth models. Gore recognizes that the advantage that he has is a 28 year head start, and a rich data set that is not easy to replicate. He shares the details of his remarkable career journey to date, and his thoughts on the future in this interview.
Peter High: You founded the South African-based, Discovery Limited, back in 1992. Could you talk about the genesis story of Discovery and why you felt the time was right?
Adrian Gore: The country was going through quite a dramatic change. Nelson Mandela had been let out of prison in 1990, and South Africa was moving towards democracy. Health care and health insurance is a sort of a microcosm in any society of what is going on and at the time, there was a dramatic rate of medical inflation. Health care inflation was at twice price inflation.
At the time, the health insurance companies were battling, and I spotted an opportunity to start a specialist health insurer in South Africa. I had this basic idea that if it was built on rigorous actuarial financial principles and used the latest thinking, I could take a team and create a sustainable health insurance company. South Africa has far fewer doctors per thousand [of people] than developed countries do. Further, we have a terrible disease burden. For example, we have the highest rate of HIV.
The government was rightfully intent on an egalitarian, almost Obamacare type of regulation of having no discrimination and not turning people away. When you put those elements together, the ability to offer insurance on a sustainable basis is extremely difficult. You could not turn people away, and you could not manage the care because there were too few doctors for an insurer to have any leverage. We had a simple insight, which was to focus on making people healthier. If we could get people to be healthier, we could reduce the demand for health care, we could have a more solid risk pool, and we could offer a sustainable product. The complexity of the South African environment at the time gave rise to a simple purpose, which was to make people healthier. The company was started on the vision of mixing complex actuarial principles with the simple vision of making people healthier and the simple idea of incentivizing people to be healthy. That was the start in 1992.
High: Many organizations recognize that cost is driven by a lack of health. Therefore, incentivizing people to get healthier to reduce cost is important, but it has proven to be extremely difficult for many organizations. What have you done that is different?
Gore: At the time we did this, there was little data around prevention working. This was still a time with a great deal of infectious diseases where there was a belief that risk is often pre-existing. You have a kind of a risk profile, it gets priced in, and that is your position. The use of incentives in the early '90s or the late '80s was not something that was done. There was little understanding of behavioral economics, which is how people respond to decision making and why they have certain biases about the choices they make. Daniel Kahneman and the idea of loss aversion and similar ideas were only starting to evolve at that stage. The initial idea came out of a successful gym chain that we wanted to incorporate into our health plan. We could earn by going to this gym and, in effect, by making healthy decisions. We embarked on that journey. From the get-go, we had a deep sense of making incentives profound and pricing them into the insurance product so that the two would be linked. We did this despite the fact that the technology was pretty rudimentary at the time.
We did not make the incentives honor-based, so people had to demonstrate healthy behavior by going to the gym, going through full preventive screening, and other activities. We measured this through technology even though it was quite clunky at the time. We tied ourselves into the gym chains and as they went through the turnstile, our systems picked that up. The rigor of the incentives and the technology that made sure it was properly verified activities so that we could offer real valuable incentives created an extremely successful integrated model.
High: As you were a pioneer in this space and have been collecting data for such a period of time, does that data give you an advantage now?
Gore: Without a doubt. We have a considerable lead on the data side, but this is not to say that the debt does not impede others from doing the same. We have about 50 million life-years of data, so we deeply understand both causality correlation to certain behavior types and the effect on mortality and sickness curves. We know how those aspects relate to one another, and we have applied similar data techniques to credit default in our credit card business. This involves understanding behavioral impacts and how they correlate to credit defaults, and we have done the same with how people drive, fatality rates, and accident rates. We developed a rigorous way of thinking about the shared value model, exactly how you measure the data, and how you understand causality and the correlations. I believe it is important to know both.
Over time, we have published many papers. Last year, we published a study with Apple on the Apple Watch benefits and how that works, and we have done the same this year on physical activity and its impact on economic growth. We are trying to build the platform globally, and we are trying to influence the narrative around how the data can impact society. The data is paramount to everything we do, but there are four silos to the model. Data is one of them, and data is a powerful piece to it.
High: What drew you to behavioral economics?
Gore: As I said, when we started, we had this hunch of incentivizing better health, so we had no idea of the depth of the science that we were somehow stepping into. It has become clear that a few behaviors are [particularly detrimental] to health, which are smoking, eating badly, and being physically inactive. Science quickly shows that three conditions drive 50 percent of mortality and 80 percent of the disease burden. As we evolved, the intriguing question was figuring out why people make the choices that are truly bad for them. When you start to delve into that, you quickly get into the behavioral economics concept that people seek instant gratification, so people discount the future. All of that has become an evolving part of our business, and one of the successful attributes of the Discovery story has been mixing behavioral economics with the hardcore actuarial economics that is not at all emotional but financial and statistical. It is about bringing those two together.
There are three issues that drove us.
- The understanding of behavior. In most financial services silos, whether it is banking, motor insurance, health insurance, or life insurance, only a few behaviors drive the risk. That emerged quickly for us.
- Technology, which is obviously an enabler.
- Purpose. Our purpose was to make people healthier. When I would give presentations to analysts and stakeholders 20 years ago, it was a soft idea to many. However, today with purpose, environmental, social and governance, and because our model has more and more shared value, it resonates well.
We have had a bit of an evolution. I do not believe there have been one or two epiphanies, but it has been the strong evolution of megatrends that we fell into.
High: Can you talk a bit about how the organization has grown? How has one opportunity led to the next?
Gore: Our genesis was health insurance, and we developed the health insurance company, Discovery Health, in 1993. The Vitality link and its foundational effect has been incredibly successful. The strength of the model is that it did not have a trade-off. If you get it right, it is great for customers, it makes us profitable, and it is great for society. No one ever complained about the idea of incentivizing better health services, so we got going on an incredibly positive track that appealed to all people. While the countries we operate in make it the law, we always stressed the concept of making people healthier. Regardless of people's risk factors, it has always been about getting people to behave differently, improving those factors, and pricing those into the financial services model.
We came across the life insurance industry, and most of us were life insurance trained actuaries. The standard model for life insurance is quite bizarre. You get underwritten, you go through a medical process, you fill out all these application forms, and then you pay a premium that is fixed for the next 40 years. While this worked 50 years ago when aspects were entirely pre-existing in how we manage risk, in a world where 60 percent of the risk is behavioral, pricing someone at a point of time does not work. We saw that we could offer life insurance in a way where premiums could flex as you engaged in the program. Offering people a lower priced entry point and then letting the cost of the insurance drift down if they engaged or drift up if they did not engage gives them control over their behavior and it resonated so well. The South African market is an innovative market for the insurance business. The public setting here does not provide to that part of the markets and in effect, the entire social security system is provided by the insurance industry. We disrupted that market here and became the biggest life insurer by new business sales fairly quickly. Further, over time, the model went to Asia with AIA, to Japan with Sumitomo, to Europe with Generali, and to the U.S. with John Hancock. The model repeated in scale across many markets, so the life insurance jump was great for us.
South Africa has a huge problem with motor vehicle accidents, and we applied the same model to try to make people drive better. The presence of telematics and those devices were being used more for almost a pay-as-you-drive insurance model. We saw the opportunity to use sophisticated pieces of technology to know how people drive, how they accelerate, and how they break. We got extremely involved in the data. We got Michael Schumacher's Ferrari team to help us think through the telematics and the way people drive and applied that to the data. Similar to the health system, we developed an insurance model in which if you drive better and safer, you earn Vitality points. The points give you a status, and the status gives you all types of benefits. In this case, we offer gas at a discounted price. This shared value motor insurance model is doing great.
Lastly, we created a credit card business, which has been extremely successful. We saw the correlation between how people behave on the health side and how their credit tends to perform. Science shows that people who are disciplined and can avoid instant gratification in managing their health tend to act the same way with their money. If you can somehow predict how people behave, you can apply that to elements of banking. Over the last five years, we have been building what we call a behavioral bank. This is the concept of offering a sophisticated fin tech bank, but its real reason is to offer people incentives to manage their money well and reward them for doing so. It has been an evolution across a number of industries and geographies. As I said, the model has scaled to 23 countries today.
High: You mentioned that the entry points in many of those countries have been through partnership. Can you talk about how you have established those partnerships and the differences between them that might be representative of the variations of the different markets you have entered?
Gore: We were approached by UK Prudential, which is a giant insurer in the UK, in around 2004-2005. This was about building a health insurer on the shared value chassis in the UK, and this led to a partnership that was extremely successful. We built the health and then the life insurance product over time, we bought that partnership out over time, and it became a primary market for us. Vitality in the UK is a Life and Health Insurance Company, but it taught us a great deal about partnerships. The CEO of Prudential, Mark Tucker, went to Asia and took AIA out of the AIG stable after the financial crisis. AIA was sold to the public markets out of AIG, and it became the largest listing in Hong Kong. The CEO of Prudential ran to the AIA CEO role, and he did a brilliant job. He and I had worked together at Prudential, and he told me that what we were doing could work across Asia. Our teams started working through how this could work, and I learned that there needs to be a corporate competence to partner. It requires specific behavioral attributes between two different corporate value systems. You need to make sure that there is trust, so we worked hard to ensure that the product worked and that we could partner well. We partnered with Ping An in China, which is likely the most powerful insurance company in the world today, and we own 25 percent of its health insurance business. We ended up realizing that this model could repeat through partnerships. As I said, we worked with John Hancock and Manulife in North America on a similar basis, which has been exceedingly successful. I have a strong belief in partnering with multinational champions in the market. This includes Sumitomo in Japan and Generali in Europe.
We then do more in smaller markets, but the idea is the exact same. We are applying a discipline to the behavioral chassis of Vitality. It is AIA Vitality or John Hancock Vitality. Wherever you go has that brand, so we apply discipline to how it looks.
Further, we have applied one piece of technology across the world into this platform where all of our partners increasingly sit. We created this platform structure upon which all of this resides and the partners sit, and we have created a Vitality network in which the companies that sit on the platform represent 35 percent of the world's covered population. This has given us considerable one-to-one relationships with great people and great companies, and it has given us a network of considerable scale. We had a global Vitality conference in London several months ago that all of our partners attended. At the C-suite level, we are getting the buy into the overall movement that we are creating. The focus has not just been on the model but on careful partnerships and creating a sense of a movement. Although this Vitality global initiative is five or six years old, it is gaining considerable momentum.
High: The bank is the most recent entry in the portfolio that you lead within Discovery. I read somewhere that you and your team spent one and a half million hours integrating 120 systems together to create the platform upon which the bank sits. To me, this seems emblematic of the enormous complexity behind the scenes required to make this as simple as possible to the customer. Could you talk about the interplay between the hard work necessary to make something that is intuitive, easy to use, and something that customers will want to use?
Gore: Your insight is right. Making something simple enough for the customer takes complexity behind the scenes. The idea of the bank was about incentivizing people to change their behavior by virtue of managing their money well, so we used the exact same architecture. However, the complexity was building a Vitality chassis on financial behaviors. We wanted to almost automate all the sucking in of all the data, and individuals joining the bank with their consent gives us access to all the different bits of data. As a result, we can understand how they ensure their savings and debt levels, we can give them a Vitality score, and they are incentivized to make healthy decisions by managing their money. The complexity was around the value proposition. The price of banking is the rate of interest that you pay. Our analog to the other industries we have worked in has been the idea of dynamic interest rates. In other words, if you manage your money well, you pay little interest on borrowings, you earn high rates of interest on savings, and we would integrate you into the reward structures we have elsewhere in our platform.
We have stacked the economic value from life insurance, health insurance, and banking into one set of rewards that offers you ridiculous discounts on healthy food and other areas. It gives you Discovery miles currency that you can monetize and transfer. This is based on behaviors, so if you manage your money well, spend responsibly, or go for a run, you earn a currency in your bank account. The bank brought together the power of technology, but the concept was to be a behavioral bank. While the bank is a full step modern retail bank that offers the entire range of services on the face of mobile, it is based on behaviors. On the face of the mobile, you can see your Vitality discount and track your currencies. We are trying to create a cool and easy-to-use bank on the face of the mobile that links underneath to all these different worlds. It has been remarkable, it is the most fascinating advancement we have had, and we are extremely excited about it.
High: Can you talk about some of the creative partnerships that you are establishing as you contemplate additional platforms through which to draw data from customers and to interact with them otherwise?
Gore: There are a bunch of generic partners in every market we work with, whether it is health clubs or healthy food grocers. As technology and the opportunities became more global, the idea of global partnerships to add to the chassis made a great deal of sense. One of the elements that our UK company broke through was the idea of active rewards. That part of Vitality was almost gamifying physical activity, so we called it active rewards.
We worked with Starbucks in the UK, and if you achieved your weekly steps, you would get a coffee from Starbucks. I did not think the idea would be effective, but it worked unbelievably well. The rates of engagement in the UK were tremendous. Besides the fulfilling part of getting a free coffee, the face of the mobile works well. It is well-integrated and seamless. We had this idea that with devices coming out, we could monitor physical activity much more accurately.
We approached Apple with the idea that working with Apple Watch could create both a powerful device to monitor physical activity and serve as a reward. Apple Watch is an inspirational product, it is a beautiful product, and people want to have it. We proposed to Apple the idea of using the watch as a lost framed structure. The simple manifestation of how to work with the customer was that you essentially get the watch for free if you follow Vitality. You pay a tiny joining fee, which is 10 to 20 dollars or pounds depending on whatever market it might be in. You then pay for the watch monthly, but the monthly repayments go down as you become physically active. Every month, depending on your physical activity, your watch repayments fluctuate. We have created this real loss aversion where you get the watch in effect but stand to lose it if you do not achieve your physical goals. If you are meeting your physical activity goals, the monthly installment is zero. The truth is that if you do nothing, you end up paying for the watch over 24 months without interest, which is not exactly a loss. We have a partnership that is easy to globalize, and it has had an amazing effect. We rolled out a study with Apple that showed three markets, the US, the UK and South Africa to show the impact this had on physical activity and sustainability regardless of gender, geography, and risk factors. On average, rates of physical activity increased by 34 percent, which shows that people have gotten remarkably engaged in the program. We are doing this type of partnership in a few markets now, and I believe they will get bigger and better as we go on.
High: Could you talk a bit about your thoughts as to the South African market and its growth?
Gore: The South African market is a complex one, and it is sort of a two-tier economy. The social imperative of reducing inequality is one of our biggest issues here. You have got this developed market of roughly 10 million people that are developed and economically sound. However, there is an underdeveloped market of 40 million people, and the public sector is underfunded. Financial services and insurance particularly is a crucial safety net in a market where you often have a lack of public sector safety net. The complexity of the market makes it a fantastic market as a laboratory. It is pretty sizable in and of itself, so we built some big businesses in the South African market. Unfortunately for us, as a competitor, the banks are well run, they govern well, and their technology is first rate. There are some extraordinarily sophisticated companies, but the markets and the country have considerable complexity around social pressure and funding gaps. The market has scale in it, we built a big business out of it, and it is a market that is great as a laboratory. It is one where these pressures manifest in considerable innovation. We are proudly a South African company but one we can globalize on the basis of what we have done.
High: As you look to the future, what trends are particularly exciting to you?
Gore: It goes without saying that technology is spreading into every single issue. I know this sounds soft, but I believe the issue of purpose is gaining considerable momentum. This whole movement towards environmental, social, corporate governance (ESG) and the importance of ESG is obviously critical, but what we are trying to get to is the concept of shared value. Instead of focusing on compliance, ticking boxes, and other elements that often increase costs and reduce competitiveness, I am excited about purpose that drives better results, brings prices down, makes you more competitive, and makes customers more sticky and engaged in your model. We have built a shared value platform around doing exactly that across financial services. I strongly believe that we can transform financial services because the trend is going towards better products that do well by way of the customers they serve and ones that create values for customers.
As a global network of all of our partners, we have put out a pledge to make a hundred million people more physically active by 2025. We are doing a great deal as a collective to try and do that, and we are taking it extremely seriously. Besides the necessity of shareholders and all the stuff that you need to have as a business, we try to go about it in a way that improves the world. The insurance industry particularly monetizes better health. Besides the government, we are the only actor that directly monetizes people being healthier, and we have directly monetized people being healthier because we can do this. We are focused on transforming the idea of purpose from a fluffy one to one that is a proper actuarial technology platform that can serve many companies.
High: How do you apply some of these same lessons back to your own life?
Gore: In my personal life, I have always had a deep conviction for fitness and staying healthy, which has helped me personally scale and stay focused and intense over 25 years. Being exposed to this gives you a deep sense of conviction that you can live a better life.
This article originally appeared on Forbes.
