Pinnacle seeks new heights with capital raising
[UPDATED] Pinnacle Life is seeking new capital to expand its operations, with managing director Noel Vaughn saying the market for direct life sales is larger than they are currently able to exploit.
Tuesday, September 25th 2012, 9:57PM 
6 Comments
by Benn Bathgate
Pinnacle Life is seeking to raise upwards of $10 million to expand its operations, with managing director Noel Vaughn saying the market for direct life sales is larger than they are currently able to exploit.
“I think we regard the niche in the market we operate in as being several times the size we’ve got. Fundamentally we think our market niche is some four or five times greater than where we are,” he said.
Vaughn said no additional cash had been raised at present as they had just begun the process of approaching institutional investors, pension funds, venture capital operations and “well-heeled” private investors.
Vaughn said the company would use the cash primarily to expand its radio and social media advertising, but that television advertising remained a possibility depending on the amount of new capital raised.
Pinnacle Life recently received a financial strength rating of B (Fair) and an issuer credit rating of ‘bb+’ from AM Best, and Vaughn said the additional capital would also enable them to obtain a better rating.
“The issue we’ve got is we’ve run our capital pretty hard to the point we’re at and AM Best are saying, as is some of the internal control measures we’ve got, that we need more capital to keep going,” he said.
“We got a rating at the time before we came into the market for more money. We would expect as a response to getting more money that the rating would be improved.”
Vaughn acknowledged that the life market is dominated by brokers, saying they account for around 60% of the market, but he also believes scope exists for expansion of the direct-to-consumer market.
“We’re in that market, Asteron is to some extent and Cigna is as well, so we think it’s going to grow. We just need more capital to service it.”
He said he believed an increasing number of New Zealanders were becoming more comfortable buying financial services direct using online channels.
“Life insurance at its heart is a relatively simple product. Why wouldn’t you buy it directly? Make your own mind up about how much you need and how much you want to pay for it,” he said.
“The number [of people] who are dealing online is growing and we’re part of the process of servicing them.”
Benn Bathgate is a business reporter for ASSET and Good Returns, email story ideas to benn@goodreturns.co.nz
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Comments from our readers
Indeed so would I like to know Phillis.
Look they need more money. That can't be a surprise when you have sub 1% market share, over 100% expense ratios and a "non investment grade" rating.
Not bad after 14 years trading, compared to those other little startups Pinnacle loves to hate, like Sovereign, Partners and Fidelity.
The recent LIMRA study in the US found that 56% of households that think they will buy life insurance in the next year say they haven't yet, because they don't know how much to buy. So much for people wanting to "make up their own minds". There's a reason us commission-hungry advisers flitting about on private jets dominate the market selling our ordinary over-priced insurance.
Because 94% of the buyers choose it.
Good luck there sorry Noel. As any insurance adviser (broker) knows when it comes to the vast majority of Kiwis unless there is an actual adviser actively encouraging them to be "responsible" most will never get off the sofa to secure cover. There will always be "switched on" clients that don't need an adviser lecturing them on the benefits of having cover (who would potentially go online for life insurance) but they will always unfortunately be in the minority. In saying that most of the “switched on” clients will actually want the experience of an adviser to talk to when deciding on the most appropriate cover to have. This has certainly been my experience with clients who approach me seeking cover on their own initiative.
I am staggered at the remark by Mr Vaughan that: “Life Insurance at its heart is a relatively simple product. Why wouldn’t you buy it directly? Make your own mind up about how much you need and how much you want to pay for it”, I am confident that the only time that Pinnacle Life can find a cheaper premium than any competent Broker is either when they discount the first year’s premium on an on-line application, or when they carpet-bag somebody else’s hard work and give a 20% discount to an existing product.
I have no problem at all with people providing on-line insurance on a “no advice” basis as long as they don’t spend their whole time telling anyone who will listen, how superior they are to Brokers who offer advice and a service in the event of any complications in the Underwriting process, or heaven forbid, at claim time.
The final remark by Mr Vaughan as follows: “The number of people who are dealing on-line is growing and we are part of the process of servicing them”, is worthy of a Tui advert; how can any offering that is based purely on price be referred to as a service?
That would be because the bulk of the business that those very brokers place with Pinnacle replaces business that was written by the same broker a couple of years earlier.
I have seen cold hard evidence of this in a book my former employer purchased.
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