Discovery has entered the short-term insurance market with yesterday’s launch of Discovery Insure, ending months of speculation. And typical of the listed financial services firm, it has put together incentives such as a 40 percent rebate on fuel cost aimed at attracting customers.
The new company will offer comprehensive vehicle, personal and household cover. Discovery Insure will be headed by Steffen Gilbert. It has refused to disclose the initial investment cost but said it would take three to five years to generate profits.
Adrian Gore, the chief executive at Discovery Holdings, said the group had studied this R50 billion market for years and was optimistic that it would make a difference.
“There is a commercialisation of products and we believe we can add value. We will use our Vitality experience to make people better drivers and to make petrol affordable,” Gore said.
Similarly to its health wellness programme, the new unit has put together an incentive programme called VitalityDrive, which will reward people for improving their driving.
“We have developed a device that people can install in their cars (to) measure their driving and we have a partnership with BP. If you pay with your Discovery card, follow the car checks, you could get up to a 40 percent rebate on your petrol,” Gore said.
Gore said the main focus on the first year would be to make sure of the product’s quality. There are about 50 staff at the new unit. Gore ruled out acquisitions saying it would prefer to grow organically.
Discovery operates in health-care cover and life insurance markets locally and in the UK. It also has long-term savings and investment businesses locally.
Contacted for comment yesterday, rival Outsurance referred to comments that its chief executive, Willem Roos, made to Moneyweb earlier this year when it was still rumoured that Discovery would become a new player in short-term insurance. The firm said those remarks still stood.
Then Roos said: “Absolutely, it’s a threat and I think it would be the biggest threat that has entered recently. One point in that is that Outsurance is a direct player. We source our business directly through advertising whereas… some of the big players source their business through brokers,” Roos said.
“I would suspect that Discovery would use a broker distribution model because that’s what they use for their life and health business. So from that point of view I would argue that (it) would be a bigger threat to the broker distribution companies than the direct market. But we all compete for the same customers and we would take Discovery as a competitor very seriously.”
Santam and Mutual & Federal did not respond to queries.
Imara SP Reid analyst Stephen Meintjes said Discovery’s chances to succeed in its new venture were good because it would have done its homework and had done well in all the other areas it had entered.
But Meintjes did not think that competitors would rush to change their business models.
“It will be business as usual and they will not have a price fall. A lot of smaller players came in, slash the prices and very often don’t survive,” said Meintjes.
Khaya Gobodo, the head of equities at Afena Capital, said competitors must be losing sleep over Discovery’s entry because it was a formidable competitor, good with innovation and distribution in the consumer segment.
Discovery rose 2.08 percent to close at R38.27 yesterday. – Slindile Khanyile