Discovery offices in Sandton [Source: SundayTimes]

Discovery complained of endemically high medical inflation in its results for the year to end-June, released on Tuesday.

Notwithstanding its gripes about the medical industry, Discovery’s medical aid division grew both gross inflows under management and normalised profit by 11%. The group’s overall income grew by 16.8% to R52.8bn, and its net profit by 27.6% to R5.7bn.

Discovery declared a final dividend of R1.14, taking its total for its 2018 financial year to R2.15, a 15.6% increase on the prior year’s R1.86. Discovery Health contributed 60% of the group’s gross inflows, but less profit than Discovery Life, which contributed only 9% of gross inflows.

The group’s life insurance division contributed 44% of normalised profit, beating the health division’s 32%.

“High medical inflation remains endemic, driven by a combination of supply and demand factors, as well as the recent increase in VAT,” CEO Adrian Gore said in the results statement.

“Supply-side factors include growth in new hospital facilities and new high-cost medicines and devices,” Gore said.

“Key demand-side factors include ongoing adverse selection trends and the increasing burden of chronic diseases and cancer, as well as the gradual ageing of the scheme’s membership base.”

Gore said fraud control within the health division was a major focus, with more than R500m recovered during the financial year. About 12%, or R5.7bn, of claims to Discovery Health were rejected by its risk management systems, representing a “return on investment on the scheme’s managed care fees of 269%”.

Following its diversification from medical into life and short-term insurance, Discovery is now in the process of moving into banking. A condition imposed on Discovery’s banking licence is that First National Bank’s holding company, FirstRand, divest its 25% shareholding in the insurance group. Gore said the parties have agreed that FirstRand will sell its stake in Discovery “as soon as practically possible”.

“Although these developments have delayed the process slightly, the bank build is progressing well and remains within budget, and the launch is expected before the end of 2018,” Gore said.


Business Day