My 1Life Policy

Life insurance: The direct channel

Posted  August 8, 2012

When Telesure launched 1Lifedirect six years ago, it stood alone. Clientele Life's "lasting dignity plan" had been there since the 1980s, but this was a niche product aimed at people who had been rejected by other insurers owing to ill health. It also focused on sums assured of R200 000 or less.

Over the past year, however, direct life insurance has grown substantially. The large players include Outsurance Life, Frank.net (part of Liberty) and Standard Bank and FNB, which now both offer life cover online. There is also a credible independent internet-only business, Instant Life.

Says 1Lifedirect MD Laurence Hillman: "We are delighted that so many companies are coming into this space. It proves it is not a novelty but a mainstream business channel." Outsurance head Willem Roos says pure-risk life insurance is a natural extension of the group's product range, which is still dominated by motor and household insurance.

But it is only logical for direct insurers to offer a simple, single-need product. "Life insurance obviously forms part of a client's long-term financial planning, which is the domain of a well-qualified broker," says Roos. He does not expect direct life insurance to get anything like the market share of the direct motor business. Direct already accounts for 40% of personal motor insurance premiums, but struggles to make up 5% of life premiums.

Roos says price is one of the main selling propositions of direct insurance, but so is simplicity in product definitions and process. It is no accident that as soon as there is complexity, life insurers have to work through intermediaries. Bright rock, a new life office in the Lombard Insurance group, shies away from simple death, disability and dread disease products, and instead quotes based on a complex financial needs-matching exercise. This counts as advice-based and requires a face-to-face meeting with a broker.

At the other extreme, Instant Life does almost all its business online, and few prospective clients even talk on the phone. Instant Life’s Jan Kotze says the low cost of acquisition and fulfilment online means it does not have to incur the high advertising and call-centre over¬heads of its competitors. "We serve a growing market segment that prefers to transact online." In the UK, online transactors gravitate towards aggregators, allowing the transactors to compare quotes online.

The main aggregator in SA, Hippo, suffers a credibility disadvantage as it is part of the Telesure group. A quote for a life product from Hippo will typically include 1Lifedirect, perhaps First for Women (also in Telesure) and Hollard, which has common shareholders with Telesure. None of the other direct players, nor the large broker-based brands such as Santam and Mutual & Federal will appear. "Outsurance does not believe in the aggregator model," says Roos. "We consider them to be online brokers. Our message is: 'come to us directly and we can save you money, as we do not have to pay intermediary fees or commissions'. "Old Mutual and Sanlam have been notable absentees from direct life.

Rene Otto, CEO of direct insurer MiWay, in the Sanlam stable, says it had a pilot project selling life products to existing MiWay clients, but this has been shelved. "I think a direct life assurer needs to be a stand¬ alone business with its own process." It is hard to get profit numbers from direct insurers. It is undoubtedly more expensive to set them up initially, and advertising is a fixed cost. Liberty's Frank.net sales fell by 15% to Rll million in the six months to June. The conversion of leads and client retention proved tough. But Frank.net was never seen as a profit centre in its own right. Liberty has much greater potential from its joint ventures with Standard Bank and Vodacom.

Source: FINANCIAL MAIL, page 52

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