Macdonald says online distribution provides risks and opportunities for insurance brokers.
He says they need to embrace the online world to compete these days. While they don’t have to build an online sales and comparison site like Life Direct, they do need to use the internet a lot more.
He believes that more and more life insurance will be sold online. Some of it will come from people who have already bought from a different source such as an adviser or bank, and others will be new customers.
However he is not “absolutist” in the view that people will only use the internet to buy insurance products.
After doing its research Trade Me was convinced that insurance sales online had reached a stage where it could be described as a “legitimate channel” and one where there was sufficient scale and growth to be worthwhile for Trade Me to enter the fray.
He was a little less forthcoming on how much life insurance Trade Me could sell.
“There is nothing I can share with you,” he said.
Macdonald said Trade Me had researched the insurance industry and life companies.
He said life companies saw online as a complimentary distribution channel which would help their businesses.
And that they were “optimistic” about the additional value it would drive.
Macdonald won’t disclose whether Life Direct was remunerated the same way as advisers were when it came to selling life insurance.
“I risk doing myself an injury in answering that question,” he said.
Trade Me had looked at other companies however Macdonald wouldn’t say which ones or whether it had made any other offers.
One of the larger online companies is Pinnacle Life which is looking for new capital and spends a lot of money on advertising to acquire new customers.
Macdonald had “no comment” on whether it was interested in Pinnacle. However he did go onto say that it was a different business to Life Direct. While both companies sold life insurance online, Pinnacle was also a life insurance company. Macdonald said Trade Me didn’t tend to buy businesses that made product.
Macdonald says one of the other attractions of Life Direct was the team of people involved, which he described as “a smart bunch of individuals.”
As Trade Me gets bigger and older we want to retain good entrepreneurial people, he says.
The deal has been structured where “a good portion of the payment” is in a three-year earn out period.
He says that gives the company more than enough time to understand the business.
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