An application of porter's five forces model to determine the attractiveness of a third party distributor of life and investment products.

Abstract

The research centred around the fact that the existing methods of distributing life and

investment products was inefficient and it was decided to research the issue to determine

whether a more suitable cost effective method could be developed. Currently the

distribution of life and investment products is very expensive and therefore an alternate

method of distribution was being explored. This was also endorsed in a survey conducted

by the Financial Services Board were it was found that in order for financial services

company to survive and compete new models need to be developed to compete in this

increasingly globalised industry.

Life assurance and investment products in South Africa and elsewhere in the world is

sold by agents who are employed by the life assurance and investment companies. More

recently other distribution channels have emerged and these include the internet, direct

mail and call centres. The share of business that is obtained through these means is also

an interesting feature to explore when investigating the methods used by new entrants to

this multi billion rand industry.

The situation prevailing in the local industry is that independent brokers secures a

contract with the life company's and this places the broker in a position to market the

company's products through the use of business consultants. There are significant costs

associated with the current model of distributing the companies' products. These are

broker consultant salaries, car allowances and traveling expenses, entertainment

expenses, overriding commission on the business sold by the broker they servIce,

management and support staff expenses and related expenses.

The proposed model will have following characteristics.

• Have distribution contracts with all independent brokers.

• Using the franchise methods of training and recruiting business consultants.

• Variable costing methods in determining payments for service delivered.

• This method would also significantly reduce the cost of distribution by the new

entrants into this multi billion rand industry.

In the final analysis it was shown that the third party distributor would make a difference

to the manner in which life and investments products is distributed in this dynamically

changing industry.