You founded Discovery in 1992, in your mid-20s, with just R10 million in seed capital. Today it’s a multibillion-dollar business with 12,000 employees. What gave you the courage to go at it alone?
I was a young actuary at Liberty Life and was inspired by the sense of how an institution can change society. It lit a fire in me. Liberty had achieved some global exposure. I was inspired and it gave me a great sense of ambition to build something that could positively influence people’s lives. I remember sitting in their atrium thinking: “If you could build something like this it would be unbelievable.”
The journey started with a sustainable health insurance product. It was always a big-picture, value-centric approach. It wasn’t ever about making money. We disrupted on every front. We did not sit in the boardroom. We kicked the doors down on every single thing. Brokers had never sold health insurance. We created the distribution channel and restructured products. We tore everything apart. We took strategic risks. When we listed on the JSE, the government warned us they were going to take us down. We were fighting. That’s what it takes. It was bold stuff.
The breakthrough at a philosophical level was understanding the concept of too few doctors in the midst of a terrible disease burden with HIV/AIDS and high levels of communicable illness. We wanted to keep medical aid costs under control. Our simple concept was a medical savings account. I like complexity but there is power in simplicity. If you have a savings account and people see they are spending their own money, they behave differently than they would if they spent a third party’s money. Either you control cost by controlling the supply side or you give people control on how to spend their own money.
How did this develop into the behavioral economics model?
I was inspired by the idea of Walt Disney’s purpose of making people happy. At a time when companies were only worried about shareholder returns, our idea was to make people healthier. We wanted to empower people to make the right choices through the savings account.
I started giving talks. I would tell CFOs of big companies to forget health benefits—“currently your employees and you are on opposite sides of the fence, they are trying to consume everything they can, and you are trying to fund it. So, we are going to change the incentives.” They came to the same epiphany that I had had. And from there things started to rocket.
Regulators and competitors started to take notice. We were creating all kinds of discontinuities in the market. We started to say: “if you belong to Discovery, you can go to the gym for free.” This was 1997. Nowadays a gym is a utility but then it was a status symbol. What we did was make people earn the gym. If they went to the gym enough times they could go for free. That was the embryo of Vitality. It just evolved. We were trying to incentivize behavior. It was an absolute consumer hit but at a policy level there were heated debates.
Then we started testing how this could be applied elsewhere—to life insurance, to banking. We launched a credit card business with First National Bank, changing credit card incentives. We innovated around dynamic pricing. We realized underwriting and paying the same life insurance price for 40 years did not make sense. We began to understand why people make bad choices and that risk was largely behavioral. This was a profound shift in financial services. This wasn’t about loyalty programs.
Our purpose of making you healthier fed into the growing concept of behavioral economics. It was only in 2012 that Michael Porter came to SA to speak at one of our leadership summits. His view was that society would do well if companies, by virtue of their business models, created economic behavior that would benefit everyone. Our business was completely aligned with our clients: if they are healthier, we are more profitable. Our ultimate goal is that by being more competitive, we also help society. That’s a perfect, shared-value cycle.
What about the analysts who fear you are taking on too much risk by expanding the behavioral economics model into adjacent industries?
We never bet the house on anything. Nothing we do poses a systemic risk. The scrutiny we have been under is more about our organic growth model. It’s a function of “can you pull this stuff to scale?” That is not an illegitimate question. We have been transparent around what we are investing in, new businesses like the bank. This takes time—brick-by-brick organic growth. Had we been on an acquisition trail, you’d have no idea if value was created.
I don’t get offended by this type of criticism. I listen to improve where I can. My team knows that I want to hear every comment and anecdote of what people are experiencing. I got a report last night at 10 p.m., about 40 pages long. People email me. I read emails the whole night. Even in difficult times, if you can afford to build you need to do this. When the cycle turns—and it will turn—you’re in play.
As a founder-led business, how much thinking goes into your succession plan?
Quite a bit. I tend to emphasize IQ and ability but there isn’t a “Discovery Person”; quite the opposite. There is value in diversity of thinking in pursuit of the same goal—real deep thinking, both IQ and creativity. That’s what we are looking for—not an actuary who is technically brilliant but doesn’t connect the dots. For succession planning, there are a lot of people able to take over from me one day, easily.
Marina Bidoli is a Brunswick Partner and Head of the firm’s South Africa office. Georgie Armstrong is an Associate based in South Africa.