A year ago, 1LifeDirect came to the market offering consumers the opportunity to cut out the broker and buy life cover directly. The industry was sceptical because other attempts at this model, such as Old Mutual’s Greenline, had not been a success. The argument was that, because it is a grudge purchase, people do not buy life insurance — one needs an army of brokers to go out and convince people to take out cover. It would appear that 1LifeDirect has proven this argument wrong. The company uses only above-the-line advertising, so customers themselves have decided that they need life insurance before picking up the phone or going online for a quote.
In one year, 1LifeDirect’s customers have bought life cover worth R15-billion through the telephone and internet. According to Lenerd Louw, CEO of 1Lifedirect, the business is growing rapidly, selling an average of 3 000 policies per month, or more than R2-billion worth of life cover — a lot of business that is not going to brokers.
The average life cover is valued between R500 000 and R1-million, which indicates that it is the upper-income earners who are purchasing their life cover directly.
According to Louw, they receive more than 8 000 calls for new business per month. That is 96 000 people per year who decide to investigate life cover without the encouragement of a broker. While many of these calls could be to compare quotes that were initiated by brokers from other companies, Louw says the majority of the people who call in claim that they have not taken out individual life cover before.
Louw says it is all about advertising. “If a 30-year-old woman sees an advert stating that she could qualify for R1-million in life cover for less than R100 a month, she realises that life cover is not that expensive.”
Louw believes the success of the business is its independence, because it is difficult for a traditional life company to start competing with its broker force by offering direct insurance. “We came as an independent business, so we did not have to pacify the brokers,” says Louw.
When 1LifeDirect launched, critics claimed that their advertising costs would devour any cost savings from cutting out the broker. Yet Louw says that, when compared to the commissions paid to brokers, their total advertising cost per policy acquired is one-third of what a broker would have been paid.
And that is just the commission. Louw points out that there is head- office infrastructure to support a broker base which includes broker consultants, their managers and back-end systems. While the industry claims to have tightened up incentives, these are still around, although they are often disguised as conferences at exotic locations. All these costs add up and increase the actual cost of the broker network.
Louw believes that the business will continue to grow dramatically as consumers become more educated about this delivery channel. The short-term insurance industry has seen a dramatic increase in the direct channel over the last five years.
Louw used to head up DialDirect, a sister company of 1LifeDirect which provides short-term insurance. Five years ago, approximately 90% of short-term insurance was purchased through a broker. Today 30% is purchased directly — a 300% increase.
Although at the moment advertising is the main driver of business, Louw says they are reaching critical levels in terms of size and brand awareness, where word of mouth referrals will start to kick in and the cost of acquisition will come down further.