With much fanfare TradeMe have launched into the world of Life and Health Insurance distribution. Naturally, there has been chatter in the industry; Why TradeMe? What will this do to the industry?
The aggregation business model is strong in other countries, iSelect in Australia, SuperMoneyMarket in the UK and Geico in the US all lead the way in this space. There is no NZ equivalent with the range of products and services these companies offer, but one would have to think Life Direct would be the best contender given its standing in the life and health space. From the side-line, one would think the Life Direct model had ample opportunity to flourish as an independent distributor. So, what has TradeMe got to gain by purchasing Life Direct?
Phil Macalister in GoodReturns questioned TradeMe boss Jon Macdonald, including asking why not implement a Pinnacle Life online model, in which the consumer can actually ‘buy’ on-line. Would Pinnacle Life not have been a better fit for TradeMe consumers?
Unfortunately, Macdonald did not reveal much, other than to suggest the obvious strategy of growing market share by levering their vast website traffic to promote the offering, but making no comment on anticipated sales increase. Pinnacle Life in his view was not the right fit, TradeMe is not looking to purchase a manufacturer of life insurance products.
Pinnacle Life view TradeMe’s acquisition of Life Direct as positive for the industry. Yes, Life Direct will be a competitor, but they always have been. We can’t see what will change, other than Life Direct not needing to advertise as much – because they get a free ride on the back of TradeMe traffic and accessing TradeMe’s database. However, it may require renegotiating the commission they receive from the insurance companies that they represent, to feed the TradeMe distribution machine.
The good news for the industry is that TradeMe has elevated the category of ‘Life Insurance’ in the market for the entire industry and we believe Pinnacle Life will be a beneficiary. If it’s ok to source life insurance through TradeMe, then buying life insurance online direct from Pinnacle Life or a Cigna becomes an easier and maybe preferable option. Introducing a Life Insurance as a category on the TradeMe website tells consumer that ‘maybe you don’t need a broker after all to buy life insurance’.
The risk insurance market in NZ is worth about $1billion each year. Direct companies currently occupy only about 6% to 8% of the market. The banks enjoy approximately 28% of this market and the balance is served by independent financial advisers.
It’s difficult to fathom that TradeMe is targeting the ‘direct’ market segment given its relatively small size. And since the banks have a clear segment of their own, this leaves the segment traditionally served by financial advisers.
So, the question is probably not about how TradeMe will impact Pinnacle Life or other direct-to-market insurers; it is more about how TradeMe will impact the independent financial advisers.