Discovery ship weathers the economic storm

June 19, 2008

Discovery ship weathers the economic storm

17 June 2008
Rene Bonorchis

DESPITE tougher economic conditions, Discovery Holdings, the administrator of SAs biggest medical insurer, is still signing up 1000 new clients a day to its medical aid business.

Adrian Gore, CE and founder of Discovery, said last week the business had an advantage in that it was not as cyclical as industries such as retail and he was pretty optimistic about what it could achieve if it used the downturn in the economy to build new products and prepare for the eventual upturn.

It would be foolish not to be concerned by the economic conditions, Gore said. But the time to build for the future is times like these.

Discoverys US unit, which has lost the business about R1bn since 2000, is being closed down. The transfer of clients to a US company took place in the past month. Gore said the process would take 18 months to two years and would cost about $30m.

In an exclusive interview he said Discoverys execution had been poor in the US and that the easier route might have been through an acquisition.

The US market is hugely competitive No one has the guaranteed right to exist, he said. Nonetheless, Discovery was still pursuing its Vitality business in the US because wellness was a growing trend in that country.

The groups UK operations, where Discovery has a joint venture with Prudential, have yet to turn a profit but Gore said embedded value was growing and the life insurance side of the business was getting going it would take a year to 18 months to get traction.

Unlike many other local businesses, Discovery was not aiming to expand into Africa. Gore said the business was not necessarily suited to African markets, but he did see opportunities in countries such as India and Australia. I n time, he said, the company might consider making acquisitions.

Gore, who with up to 10% of Discovery shares is worth about R1,2bn, said in SA the relatively new Discovery Invest was going well, offering unit trusts, endowments, annuities and other savings products in a partnership with Investec Asset Management.

Discoverys health business, which has to deal with inflation and possible changes to legislation, was growing.

A contentious issue has been the above-inflation fee increases. Gore said that with Discovery in the long term, the increase in charges would be above inflation. He said this was so that the company could continue to offer what he described as quality private healthcare, but said the company was sensitive to how hard it was to afford it.

He was also aware of the fact that the workings of a medical aid are difficult for many to understand when they were signing on as clients or trying to read their statements . Gore said the business was working hard to make its products easier to understand.

It needs to be simpler, he said. Right now if you think its simple then you dont understand it.

As for the impending changes to healthcare legislation, which would see the government fixing prices, Gore said his business could weather this, but he was against the administering of prices. He said the unintended consequences could turn out to be an Eskom-like fiasco with capacity not being expanded in the next few years until there were not enough hospitals or doctors to cater for the population.

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