It's life assurance, but not as we know it. It's direct

Sales operators have discovered the meaning of life, says Clifford German
Last month it was Richard Branson's Virgin Direct. This month it is Bournemouth-based Zurich Municipal, which specialises in direct sales to public sector employees. Shortly it will be Prospero Direct up in Lancaster. Direct Line, the grand-daddy of direct sales operations, has been selling it to existing customers since last year and expects to go national within a few months. Traditional insurers like Sun Life are also doing it.

What started as a trickle will soon become a flood of direct sales operations which cut their teeth on motor and household insurance and as competition gets tougher in those markets they have decided that the time is ripe to start selling life insurance over the phone as well.

According to Barrie Wells, Prospero Direct's founder and managing director, about 6 per cent of life assurance is already being sold over the phone. By the year 2000 it will be pushing 20 per cent.

The cheapest life product is term assurance, which pays a guaranteed sum if and only if the policy-holder dies during a set period of years. Direct Line also offers disability insurance, and mortgage protection insurance linked to a repayment mortgage which pays out a decreasing amount over time.

At most, enquiries usually cost only the price of a local call, regardless of where the customer is calling from. Some providers offer free calls. Most providers will offer a quote over the phone and will offer the under- fifties up to pounds 100,000 worth of cover without a medical examination. Customers are offered a choice of advice or an execution-only service for individuals who know what they want and are just looking for a quote.

Direct Line offers callers who sound as if they need advice a 40 minute fact-find to establish what sort of policy is required. It expected 60 per cent of its callers would want advice and has found that in fact 70 per cent just want to know how much it will cost them. It is possible that customers contact a conventional life assurance company for advice, and once they know what they want, they shop around the direct sales companies whose operating costs and premiums are correspondingly lower.

Most callers are happy to find that premiums are much less than they expected. Zurich Municipal tested the market to find that people overestimated term-assurance costs on average sixfold. A 30-year-old can buy pounds 50,000 worth of cover for as little as pounds 6 a month. Some customers may even find that it is cheaper to abandon their existing policies and switch to a telephone-based provider in spite of the fact that new premiums will be higher than they were when the policy-holder was younger.

But price should not be the only criterion. Premium-shoppers should be absolutely sure whether the quote they are given is guaranteed for life, or whether it is subject to a periodic review; the latter policy will usually be the cheapest now but will inevitably get dearer as the policyholder gets older.