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Discovery UK CEO: Taking Vitality to the Brits. Sports inspired.
Biznews founder Alec Hogg is currently in London on a short tour before tackling the alps of Davos for the next instalment of the World Economic Forum. While in London he caught up with Neville Koopowitz, CEO of Discovery UK. It’s a fascinating discussion around Discovery’s progress in the market, off the back of the very successful Vitality project in South Africa. Koopowitz talks about the challenges endured and how they used football clubs like Arsenal and Manchester City to grow the brand, going as far as sponsoring newly promoted Bournemouth’s home stadium. A lesson learnt in sunny South Africa.
Alec Hogg is having a cup of tea with Neville Koopowitz, the CEO of Discovery UK in his London office. Neville why did you come to London?
We started off in the West End and there was definitely a sense that as the business matured and grew, that we wanted to be in the city. It’s more appealing to attract the right levels of talent and lot of our clients and intermediaries are in the city so it makes sense from that perspective.
It’s an incredible story and we’re going to get into that in a moment, but we need to find out more about you. How soon after Adrian Gore and Barry Schwartzberg started Discovery did you go aboard?
Well, I joined in 1996. It was two years after trading started. Adrian obviously started a little bit earlier than that.
Did you know him?
I knew Adrian through an association that we had. I was running a healthcare brokerage/consulting company in South Africa and Adrian was trying to convince me that in those days, the Momentum Health product was the next generation of medical schemes. He eventually persuaded me to actually join the business.
How many were at Discovery when you started? What employee number were you?
Round about 200. The more telling statistic is when I arrived, we had 46,000 members and that’s the number that I like to remember because in the early days, it was tough getting people to understand what we were trying to achieve. It was something very different and I recall those days when Adrian and I used to go out personally to try and convince clients to actually move their medical scheme to [then] Momentum.
Before that though, how did you get into this industry?
After I graduated with a BComm from Rhodes University, I worked at Old Mutual for about 4.5/5 years in their broker division. It was round about that time that they came out with their first entrée into health insurance products. I sort of focused on that side of the business and then, went and actually ran that healthcare consultancy.
We’re a similar age. Back in those days, a BComm was a degree that people who wanted to go into business, did. They didn’t really know what they were going to do afterwards, except or the accountants. Was that the same with you?
Absolutely. In fact, the BComm was just really, a general degree as it was in those days and I didn’t have any idea when I went I finished school and went to university, what I actually wanted to do.
Are you from the Eastern Cape – having gone to Rhodes?
Yes. I grew up in Queenstown in the Eastern Cape. I went to Queens College and then went to Rhodes University.
I had a friend from Newcastle called Stanley Hearn who was probably at Queens College around your time.
Stanley Hearn: yes, he was. He was about four years ahead of me, a very good hockey player. In fact, I think he played South African Schools’ hockey.
Yes, he played Natal Schools’ cricket, too. Anyway, enough of Stanley and the Eastern Cape. Getting into the whole Discovery story, because it is an incredible story; 46,000 lives covered at the time that you started. How many today?
Well, across the different geographies, it’s round about six million in some form or other. In the South African health business, there are over three million lives now, which is the comparison if you’re looking at where we were from a health perspective.
The relationship that you have with Adrian Gore: clearly, it goes back right to the early days. Do you still talk often?
Yes, we communicate on an absolutely regular basis. He’s a lot more difficult to get hold of nowadays but Adrian and I have a very strong relationship and probably communicate every second day. Sometimes it’s just ‘hello, how are you’ and other times it’s to bounce off ideas. He’s still actively involved in the businesses and throws his genius over the businesses – not as often as I’d like him to in the U.K., but still very involved.
Read also: Adrian Gore: Discovery has the chassis – now watch us grow
How much autonomy do you have here?
Well, this is a U.K. business run by a U.K. board and under the U.K. regulators. From that basis, I have autonomy and I guess the model that we have is one where each one of the CEO’s has autonomy but the collective knowledge of the group always prevails. It’s not because we’re forced to do things collectively but rather that if we do things collectively, we’ll get better results.
Surely, with the Rand falling out of bed the way that it has and with the back office potential that you get in South Africa; that must give you an advantage.
Yes, absolutely. In the Vitality Life area, all the back office work is still done in South Africa. We’ve migrated most of the back office work out of South Africa.
Predominantly around the voice component of servicing. There was definitely a sense that for the U.K. population, there was the sentiment of wanting U.K. voice and call centres. Also, very importantly, the marketplace is very different in the U.K. to South Africa in terms of the healthcare system. Understanding that local context is absolutely critical and as much as you can train people in a foreign country to have a conversation about the healthcare system… Unless you’ve actually lived here and experienced the National Health Service and how it interfaces with private care, it’s very difficult to get those nuances. The company that we bought in 2010 had its call centres in the U.K. already, so it was a proven successful model and we actually migrated everything to that model.
Neville, let’s go back a little before 2010, because it is a partnership that then became a subsidiary. When you guys were talking in Johannesburg about coming to the U.K. market, what was it that motivated you and why choose Pru as a partner?
Well in fact, Pru sought us out, which was quite interesting. Round about 2003, the Prudential didn’t have a presence in private medical insurance in the U.K. and wanted to get into it. I think the reason was that the competitors at Viva were starting to have composite models with all the product lines. Pru went and did a lot of research about wanting to find the right partner. They didn’t want to start Greenfields from scratch. They did a lot of fact-finding (especially in the U.S.) and then one day, we got a letter. Adrian got a letter from the [then] CEO of Prudential saying, “Would we be interested in having a discussion?” One thing led to another and we started the business in 2004 as a 50/50 (joint venture).
Read also: Discovery to enter into partnership with John Hancock
What did you bring to the party?
Essentially, whilst it was 50/50, we combined the assets of both businesses. From Prudential’s perspective, the brand was just rock-solid and it really did give us an unbelievable platform. Brokers trusted the brand. The consumer trusted the brand. It’s one of the most established financial services brands in the U.K. It gave us that lift in terms of the credibility. In fairness, the rest was a startup business between the two companies where we recruited our own people. Where Discovery really added value was in the Vitality concept, product development, and also around distributing health products.
What is interesting as well is that this was a time when Discovery was looking globally. You had your disaster in the United States, which I’m sure taught you a lot of lessons. Subsequent to that, you’ve also gone into China and elsewhere. What was it though about the U.K., which stuck? Why would it be this market where you’ve been far more successful than anywhere else?
I think that in terms of culture, the markets are probably more similar. The geography does make a difference. It’s easier to have your second home market in the same time zones. It’s easy to get to the U.K. and everything makes sense from a logistics point of view. The first four/five years were also tough years – growing the business.
Did you ever think you might close it down?
No. There was never any doubt about the future of the business but the team did a good job. They grew the business to 200,000 lives and then in 2010, Standard Life (a big life insurance and investment business in the U.K.) were putting up their healthcare division for sale. As you know, Discovery has never done an acquisition before. It’s always been ‘same store’ growth/life-by-life that we’ve put on the books but this was almost a seminal moment in the U.K.’s history of where in one day, we could go from being a two/three percent market share player to suddenly becoming a 10 percent market share player and being a significant player in the market. The assets that we had complemented (the Standard Life assets) in terms of our products that were superior; they had a much better servicing model, which I’ve spoken about before – being localized. It made sense and we took the decision to actually purchase Standard Life healthcare in 2010. That’s when I moved over.
Were there many competitors at the time for Standard Life?
Yes. The market was consolidating and has subsequently consolidated quite a bit.
I mean bidders for that…
Yes. There certainly were three bidders that we were aware of, but it was a very rigorous process. We put in an offer and it was accepted.
How big, in the context of Discovery at the time, was it? Clearly, to send you over here must have been a big decision from the board and from the original team.
That’s very kind of you to say that, but it was a big amount of money. We spent £138m in 2010 when the Rand was around the 11/12 mark, so it was a significant investment. Yes, the board obviously wanted us to have more executive presence on the ground.
Did it do better than anticipated? Clearly, you were expecting a lot.
It’s been an absolutely brilliant acquisition. It gave us immediate scale and relevance in terms of two aspects. Firstly, from a Vitality perspective we now had the critical mass of 500-600 thousand lives to go and negotiate much more rigorous, long-sustainable contracts around Vitality. Also, as you’re aware, healthcare is about your purchasing power with hospital groups. That suddenly also made quite a significant impact. What has been very interesting, has been putting the two businesses together and the integration issues, which is something we hadn’t done before and we learned some good lessons. Today, the business is in a great state.
Where did Pru get involved? Where was its involvement in all of this?
This was around the time where Prudential (under their former CEO) had expressly said that the Prudential were looking to invest more in Asia. They spent a significant amount making a bit for AIA and were on record as actually saying they weren’t investing more in the U.K. Pru got diluted through that process. Discovery took 75 percent of the business, bought Standard Life, injected it into the business, and got the 75. Then there was a five-year option with Prudential thereafter that we could buy the remaining 25 percent and that’s what happened on the 18th of November 2014.
It was a big day because it was a big capital- raising exercise at the same time. Looking back, the equity that you placed now looks fairly cheap compared with where Discovery is today.
Well, I suppose hindsight is an exact science but I think the commitment to Discovery building its second home market (firstly, by buying Standard Life and secondly, acquiring the other 25 percent and investing into our health and life businesses) we think has been a sound investment.
The last year and a bit since that deal: have you really taken off in the U.K. market? Certainly, from an external perception point of view, the Vitality brand is a lot more visible.
That’s obviously… When you move from the Prudential brand, you’re very nervous. You’ve got a trusted brand of over hundreds of years. Will clients stay with you? Over the preceding period, we had tried to build a bridge with the Vitality brand, so we started linking a lot of our marketing with Pru with Vitality. We went in as we always do (probably naively at the time), but it’s been a fantastic journey – these last 12 months. We’ve built an exceptional brand in a very short space of time and the businesses are doing well. Vitality Life especially, is showing exceptional growth in the new business space and in the last period now as well, the health business is starting to pick up dramatically.
How many lives do you insure in the U.K.?
We insure 850,000 lives. There’s a combination of about 550 on health and about 300 on life.
And critical mass…what would that be?
Well, we think we’re at critical mass. Our life business has done exceptionally well. It’s now second in terms of new business market share. Unfortunately, we don’t have the same stats on the health side. Our strategy on health is also much more focused on individual and small SME. We are a retail brand. We always have been a retail brand. Vitality plays well in that retail space. We’re not in the market for those big jumbo health schemes, which obviously…competitors would be focused on but we are growing our area of the market quite significantly.
Being a retail brand brings us to the retail brand investment in the football teams. I guess, just starting with the littlest of them all (Bournemouth, who have been the surprise package of the English Premier League) and it’s the Vitality stadium. How do you pick that up?
Well, it’s interesting. Bournemouth didn’t just happen by accident. We have an office in Bournemouth. I have 500 staff employed in Bournemouth. We’re one of the largest employers in Bournemouth and for the last two/three years, we’ve been having discussions around getting involved with the club. We would have gotten involved, irrespective of whether they made the Premier League or not. Obviously, when they did make the Premier League, we saw the opportunity (as part of our sponsorship) of getting naming rights for the stadium, which was a bit of a long shot but it was one of the more pleasing achievements. In fact, Hilton tells me that when his kids are playing FIFA 16 (because the Vitality stadium is now on FIFA 16), at least his kids know what he does.
That’s incredible, the kind of spinoffs that you get. The big three – Manchester City, Liverpool, and of course Arsenal being the clubs that you are associated with here in the U.K.: is the association as strong in the U.K. as we see in South Africa where your advertising of all the football games makes it pretty obvious?
Well, the association with those three clubs is strong in terms of the assets that we leverage off it. Maybe, just to give you an example: we get access to tickets as a sponsor and we run what we call a Vitality VIP competition, which is based on your Vitality status. You can apply for tickets to any of these Premier League games for our partners. Just to give you a bit of context: you actually can’t get the tickets. Most of the matches are sold out, especially at those three clubs. In fact, there’s a 25-year waiting period for those who want to become season ticket-holders. It’s almost a ‘money can’t buy’ type of experience. What we’ve done over the partnership is every week, we go out and ask people to go into a draw. The more tickets they get in the draw, the higher their Vitality status, and it has been incredibly successful. We’ve had over 100,000 unique entrants over that period (of our members).
Twenty percent of your members would actually want to pick up those tickets.
Yes. Obviously, we leverage off the social media of that, so that’s just one of the spinoffs. The other obvious one – as you’ve alluded to – is the brand exposure. I always knew British football was up there in terms of global viewership, but it’s actually off the scale. It is just really, the exposure you get, purely from a brand point of view. When we changed to Vitality that we had to create the brand (Vitality) in the U.K., we obviously invested and up-weighted our sponsorships in that area.
Discovery has a relationship with Ping On in China. Is there any spinoff from what you do with the football here with Vitality into China?
Well, there is definitely in terms of brand recognition in fact, in Asia, China, and the U.S. so there’s definitely that recognition of the Vitality brand. As I said, when you’re doing branding at football stadiums, it’s more about brand recognition than anything deeper than that. It’s also the ability for people to say, “Oh, I’ve seen that somewhere” and then connecting the dots when they actually understand what the product’s about.
It’s very interesting when you consider the two South African companies that have really done well in the U.K. Both of them (yourselves and Investec) have used sports sponsorship or sports branding as part of the marketing mix. Is that the Brits are a bit asleep or is it something that you learned at home?
No. In fairness, I think we learned it at home and it resonates with the Vitality message of getting people active. People are inspired by sport and obviously, being associated with individual sports heroes or teams is the ultimate in aspiration but at the same time, the message of leading a healthier lifestyle comes through very strongly. As you know, we started that in South Africa. It took us a while here, but we’ve built some very powerful assets.
The fact that Vitality Life has part of its back office in the South African low currency environment: does that make you more competitive in the market? Has that played to the fact that you’re now the second-biggest writer, as you said?
Yes, from an input cost. Ultimately, the market here is very competitive in both health and life so your product from a pricing point of view, has to be in the zone. Obviously, if you’re getting a cheaper input into that, you can compete as well as obviously, show more profitability.
Neville, how big is the Vitality operation, relative to the South African operation today (if you were to take the current exchange rates into account)?
We’re in a closed period now, so I can’t give exact figures but at the last set of results, it was at about 15 percent of earnings. Hopefully, it should be increasing from that.
Well, at the last set of results, the Rand would have been at least 20 percent stronger so even if you stood still, you’d be moving forward in that regard. From a philosophical point of view though, do people sit in Johannesburg and say, “One day I’d like to work in the city of London with Neville Koopowitz” or do you think that they’re looking to build their careers within the Johannesburg centre?
I think it’s a mix. We try to get the right blend of local talent and local knowledge, and the smarts from Discovery. I’m very conscious of not overpopulating the U.K. business with South Africans simply because of the understanding of the local market, which is something that I think is absolutely critical. Some of the skill sets that Adrian has nurtured over the years are very difficult to replicate here and I think there is something special about those people. As a result, we have especially younger, single people in the actuarial/marketing space who have the ability to quickly hop over here and spend a few years or whatever the case is. We have quite a few of those but there’s not a mass exodus of people wanting to be in the U.K. I think everybody thinks it’s nice, but then they remember the nice weather and the good times in South Africa.
But Discovery is one of the most admired companies in South Africa. You have the ability to pick and choose the smartest people coming out of the schools and universities there whereas in the U.K., you are one of many. One would presume that the talent pool that you could import if you wanted to, would be quite substantial.
It is, but that’s our challenge here and we’re starting to see the desire of people wanting to join Vitality. Seeing what we’ve done over the last year – the brand and the excitement around the actual Vitality program – we’re starting to get that sense of attraction. Obviously not on the scale as in South Africa.
But you haven’t hit the tipping point here – surely not – whereas in South Africa, you have.
No, we certainly have a long way to go here.
Is the message getting through though, that it is innovative and different? I remember that a few years ago, The Economist wrote a very glowing report on Discovery’s business model being so different to the rest of the industry.
There’s no doubt that we are seen by the broker market, the intermediary market, and the general public as being an innovative insurance company with a difference. It’s a constant challenge to keep getting that message out, making sure that you’re refreshing the products, and that you are constantly pushing the boundaries. Generally, the U.K. is a fairly conservative purchasing population.
Here they have National Health as well so to add health insurance on top of that, I guess it wouldn’t be the whole market, for sure.
Definitely not. It’s about 11 percent of the market so about six-odd million people who have private health insurance. It tends to obviously be the more affluent. Seventy-five percent of the market is employer purchasers, so employers would actually buy the cover as an employee benefit. Unlike South Africa, there wouldn’t be that 50/50 split or whatever the case is, and then about 25 percent are individual purchasers where they’re obviously paying for it themselves. You’re right. The NHS is the core/pillar of the healthcare system but people who want to get access to private care and faster treatments, certainly won’t give up their private health insurance.
But as you said, the insurance business is also running. Neville, Discovery’s well known for being able to retain a culture of innovation in South Africa. Are you able to apply any of those learnings into the U.K. operation?
Absolutely. Our whole philosophy and the way we run our business is very much the same as in South Africa. Every week, I sit on the main Discovery EXCO, as does Alan Pollard in America. The sharing of knowledge and the sharing of best practice around the different businesses as well as the common chassis of Vitality is something that we stay very close to, so there are almost weekly meetings around how we can best deploy the different Vitality learnings across the globe. There is definitely that Discovery culture that we’ve inculcated here. In fact, this is a Discovery company in terms of the same values and the same structures. Obviously regulated in the U.K. and run out of the U.K.
Fifteen percent of the profit at the previous set of results. What percentage of people?
It’s probably about 12 percent. I don’t know the number offhand.
How many people do you have working here – people in the business?
In the U.K., we have about 1200 people. It’s about ten percent of the workforce.
Let’s do some quick questions and answers. How many hours do you sleep at night?
I try to get seven hours sleep. Unfortunately, it’s not unbroken. I don’t have a problem falling asleep because I’m exhausted when I get to bed, but I normally wake up and go back to sleep half-an-hour or an hour later.
Your colleagues won’t be too unhappy about that. Of course, eight would be better. Do you drive or take a train?
I take a train into London, but I drive to Bournemouth and we have offices up in Stockport as well, so I take a train there.
Theatre or TV?
Your favourite soccer team.
Favourite rugby player.
It’s a difficult one. Probably Dan Carter. It’s not that I’m unpatriotic, but he’s just had a phenomenal swan song.
He’s also the highest-paid rugby player on earth. What other executive do you admire (but nobody within your group/excluding your group)?
There’s a lot. I probably have to think about this because the one person I do admire as you know, is Adrian and I don’t think there are many people like Adrian Gore. Certainly, people like Tim Cook from Apple and the companies that are really changing people’s lives.
What book are you reading right now?
I have just finished the Elon Musk book.
Yes. I only like reading autobiographies. I only have time to read really on holidays and I find autobiographies just give you a different perspective of people’s thinking, which is quite interesting.
Most influential book that you have read, that you can think of.
Long walk to freedom.
Coffee or tea?
English now, so it’s tea.
Your favourite airline?
Biggest influence in your career.
Without a doubt, Adrian Gore.
Do you take the tube or would you go by taxi?
I take the tube, as painful as it is. Every now and then, if it’s a lovely day in London and the sun is out and it’s not peak hour, I would take a taxi, just to enjoy the sights.
Your favourite restaurant here in London.
Sushi Samba, which is just down the road in the Heron Towers.
If you weren’t doing this, what would you be doing?
I guess I’d like to be owning a sports team and just getting more involved in sport.
So if the Discovery share price keeps going the way that it’s going (although maybe you need a listing in an offshore geography to get that one going), you might be the owner of a Bournemouth in the future.
Highly unlikely, but it’s a nice dream.
Neville Koopowitz is the CEO of Discovery U.K.
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