Adrian Gore had 14 days to save Discovery after the government threatened to shut it down

Discovery CEO Adrian Gore and his management team had 14 days to save the company after the government threatened to shut it down a week before its 1999 IPO. 

This threat came as the government viewed Discovery’s business model as non-compliant with laws governing health insurance in South Africa. 

Gore recalled this story as an example of how urgency can be created in a company, particularly within one that has grown into a corporate. 

Companies generally become slower the bigger they get, as networks become more complex and decisions are increasingly made by committee rather than by an empowered individual. 

Discovery has pushed back hard against this by trying to ensure teams working on a specific project remain relatively small and nimble. 

The company has also spent a lot of time creating its own deadlines, such as annual product releases at Discovery Day, to maintain its own urgency. 

In his book, The Four Principles, Gore explained how the principle of Focused Urgency has informed his career and the growth of Discovery. 

The principle is still central to how the company is run today, with it preferring to set its own deadlines and pace, rather than wait to be disrupted by competition. 

Much of this learning comes from when the government created the 14-day deadline for Discovery to change its business model or be shut down in 1999. 

“The power of a decree from the government or a regulatory body to create urgency within a company is incredibly instructive,” Gore said in his book. 

“The power of deadlines in creating urgency cannot be overstated. In our case, an imposed deadline and the threats behind it enabled our entire global business model.” 

Seven years after Discovery launched in 1992, the government publicly warned the company that it viewed its business model as non-compliant with the law and threatened to shut it down. 

Gore said the process ebbed and flowed over the next two months, but came to a head when Discovery received a letter from the health insurance regulator that sent a shiver down his spine. 

14 days to avoid a shutdown

“It arrived at the worst possible time – the day before Christmas in December 1999. Our executive team was away for the holiday period, except for my founding partner Barry Swartzberg,” Gore recalled. 

“‘Adrian, we have a problem,’ he said. The letter stated that our health insurance products did not comply with new government legislation.”

“It contained a chilling ultimatum: ‘You have fourteen days to comply – or we will shut you down’.”

Gore recalled that at the time of the letter, Discovery had just signed a 15-year lease on a new high-rise building that was still under construction. The company might never move into those offices, he thought. 

The new regulations introduced to the health insurance sector included three key provisions:

• Accept all applicants
• Not exclude pre-existing conditions 
• Charge everyone the same premium regardless of age or health

“This was the complete antithesis of our business model, which was based on pricing members at entry according to their risk factors,” Gore explained. 

Discovery was effectively built in the complete opposite way to the new regulations, and accepting the changes without overhauling its business model would crush the company. 

If Discovery just changed to accept all applicants and charge them all the same, it would have to charge healthier individuals significantly more. 

This would prompt many of them to cancel their coverage and result in a death spiral, where only the less healthy remain insured and costs surge. 

As costs surge, premiums have to rise to cover them, forcing more individuals to leave the pool and accelerating the death spiral. 

Gore said these regulations were driven by the government’s broader policy agenda and were lobbied for by Discovery’s competitors, who had been disrupted by it. 

“The dramatic deadline set an almost impossible task. We had to devise a product that complied with open enrolment but was also financially viable,” Gore explained. 

Third time lucky

Discovery allowed its executive team to enjoy its Christmas holiday, but told them to return to work early on 2 January 2000. 

“We all went back to the office in Johannesburg. There were about a dozen of us, and for the next month, we camped out, working day and night to save the company,” Gore said. 

The company’s first step was to buy time, and Discovery’s lawyers secured an extension to the deadline to the end of January. 

Discovery’s executive team would have to come up with new products to satisfy the regulator before the end of the month. 

This was difficult because Discovery’s approach to health insurance was being dismissed as non-compliant, requiring a complete overhaul. 

“We rolled up our sleeves and devised new products. But every time we thought we had cracked the framework, we were rebuffed by the regulator,” Gore said. 

“For weeks, we would argue back and forth. These were desperate times. Everything we had built was on the line.” 

Gore recalled that one member of the executive team came to his house a few days before the deadline and said there was no solution and that Discovery was going down. 

Within the next couple of days, Discovery’s executive team had a breakthrough that enabled it to comply with the regulator while maintaining its financial sustainability. 

“Instead of charging different premiums for the same product, which was now banned, we would offer two different products at two different price points,” Gore explained. 

This resulted in the creation of a Standard Plan with lower benefits at a lower price and a Max Plan with higher benefits at a higher price. 

The Standard Plan would be targeted at younger, healthier members, and the latter to older or sicker members. 

“Here was the masterstroke. We allowed customers to pay an additional insurance premium to ‘jump up’ from the Standard to the Max Plan at any time,” Gore said. 

Internally, Discovery referred to this process as Apollo 1, Apollo 2, and Apollo 3 to mimic NASA’s moon landing missions. The regulator gave Discovery approval with Apollo 3. 

Gore said Discovery found that its new product structure was more attractive than its previous approach and leaned into it, with it forming the basis of the company we see today. 

“That 14-day deadline created an intensity and urgency that elevated our business from solving transactional actuarial and regulatory problems to a globally relevant business model,” Gore said. 

“Typically, this pressure comes from the outside, but I argue that great companies can creat this pressure proactively and internally.”