Just a few clicks away

1/22/2010 12:40:02 PM

Stephen Cranston

The old adage in life insurance is that it is sold and not bought. Nobody wakes up in the morning and says he wants to buy more life insurance that day. And so insurers rely primarily on the most old fashioned kind of distribution — their own agents and independent brokers to sell their products, often door to door.

But as people, particularly those under 40, get used to doing their banking and share trading online, there is an increasing demand to buy life products on the Internet. Instant Life, the newest life office in SA, has taken the bold step of distributing exclusively through the Internet, using technology adapted from Intelligent Life in New Zealand, a profitable Internet sales venture set up by SA expatriate Ed Saul.

The website is an unmistakable clone of the Kiwi original, with the same irritating squeak every time you click.

Instant Life has been marketing actively to the public only since November and it has received 10000 inquiries and sold 1000 policies. This may seem like small beer, but it is well above the sales achieved by the previous generation of online sales vehicles such as Liberty’s MyLife.com and Old Mutual’s FundsNet 10 years ago.

Instant Life MD Jan Kotze says: “We believe SA clients are mature enough for the next phase of the e-commerce curve, using the Internet to buy more sophisticated products that require online interaction.”

The compelling attraction of Instant Life is price, especially for the affluent and well educated. It offers up to R6m of cover without a full medical. Its quotes for multimillion policies are often half those of competing offices. A R3m life policy at Instant Life costs R310/month for a 38-year-old, compared with R778 from 1LifeDirect, the largest incumbent direct life office.

Instant Life has a permanent suicide exclusion, compared with an exclusion for two years by its competitors. It also refuses to pay if death is caused by any unlawful act, which presumably can include speeding.

And it has a 7,5% escalation, compared with 1LifeDirect’s two years of flat premiums and then maximum escalation of about 5%. Kotze admits that after about nine years Instant Life’s premiums are higher than those of the competition.

1LifeDirect is predominantly telephone based and it has a staff of 150, compared with Instant Life’s permanent staff of six. In its first four years of operation, 1LifeDirect has accumulated close to 100000 policies. Only a minority of this business is sourced through the Internet, though e-quotes are commonly used.

Though call centre agents cannot provide advice, they are persuasive in closing a deal. 1LifeDirect is part of the Telesure group, which also runs Dial Direct. Telesure’s skills at marketing over the phone are well regarded throughout the financial services industry — as is its willingness to spend extensively on advertising, including prime-time TV. With a budget of R300m, only Outsurance is a bigger advertiser in the financial services industry. When you Google Instant Life, the first item to appear directs you to the 1LifeDirect website.

Kotze says the Instant Life business model does not allow for a multimillion advertising budget. Instead of television and newspapers it focuses primarily on radio — Jacaranda, Heart and East Coast Radio are its partners — as well as on the Internet itself. It works extensively with Aqua Online, which develops Internet campaigns.

Instant Life’s parent company, private equity firm Venture Capital Works, also has limited brand awareness. To make up for this, Instant Life pushes in its website and all its sales material its relationship with Hannover Life Re Africa, part of the world’s second-largest reinsurer.

Instant Life piggybacks off Hannover’s underwriting expertise, allowing it to employ just one underwriter instead of a whole department.

Stuart Hill, head of Hannover’s life business in SA, says Instant Life gives the group the opportunity to reach a market which is not accessed by its more traditional clients. As a reinsurer it is happy to provide all the sales support and underwriting tools its clients need. Hill cannot comment, though, on whether Instant Life has a superior business model.

Kotze is focusing on the top end of the market, on high-income business people and professionals.

But PPS Insurance MD Mike Jackson, who focuses on the professional market, says that most top lawyers or doctors have little time for the Internet. “We try to communicate with them by e-mail but they don’t read [them].”

But there are more than enough Internet-savvy professionals to support a low-overhead business such as Instant Life.

The crunch test will come when Instant Life’s members have to claim. Direct life insurers all indulge in a practice known as underwriting at claims stage.

Says Anton Gildenhuys, head of client solutions at Sanlam Personal Finance: “If you took out a R1m policy with Sanlam, we would draw your blood and do all kinds of nasty things.

“Some people would then be turned down for cover, or subjected to loadings. But at least the people who get cover know that Sanlam will honour its commitments. This is not always true of the direct insurers.”

In 1LifeDirect’s statutory filings for 2008, it shows that it paid R6m worth of claims and rejected R28m. And the clients do not have a broker to fight for them. The business is at the early stage of its life cycle so it is not fair to extrapolate that it will pay out just one claim in five in future.

But direct insurers, who often waive medicals, rarely challenge the health information provided in application forms before issuing policies. And there is even less filtering of Internet-based clients than of call centre clients — at least the call centre staff at 1LifeDirect have been on Telesure’s course on how to spot liars and cheats.

Mike Harper, head of client services at Old Mutual, says he has no doubt that intermediaries will have a huge role to play because of the need for advice in most products, especially when needs move beyond simple life cover.

He also accepts that there is a role for direct sales, though he won’t comment on whether Mutual will go that route. But by midyear Sanlam will be distributing through its MiWay business — run by Outsurance founder Rene Otto. Liberty, which poached 1LifeDirect MD Lenerd Louw two years ago, is also months away from a direct offering.