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Why a broker is cheaper than going direct

Call centre agents are not as well-equipped to offer you the best insurance premiums.

It can actually be cheaper to use a broker when shopping for insurance – instead of going direct.

The internet carries articles punting the various views by both sides. Today in South Africa, for instance, Moneyweb found that 50% of the insured use direct insurance companies, so that the sides are fairly evenly matched.

The question boils down to whether your insurance broker acts for you, and as long as he does, the argument seems to in his favour.

A survey performed in 2010 by a company called RiskHeads found in favour of the broker, after putting questions to a panel on the various criteria that were important to them: cost; ease; speed; peace of mind that everything is covered; and security of personal data.

Contrary to popular belief, it found that that broker pricing was actually better than direct insurance pricing.

The reason for this seems to be principally due to insurers providing different rates to brokers, thus reducing the cost of premiums. Why would insurers provide special broker pricing? Simple: because the risk is lower for the insurer. Brokers are professionally trained to choose the right policy for their customers, and not to underinsure, therefore avoiding unnecessary claims while maintaining the correct premium income.

On the question of ease, RiskHeads says many of the consumers in its test case were surprised. At least half began its test with the impression that buying policies directly would be the easiest option for them. After trying both, almost all had changed their mind.

While the online experience usually proved more pleasant than the phone, most brokers offered an online service, and were far, far more pro-active after they received the initial quote request from the consumer, often answering queries by personal email or call and helping to reassure customers with a human service. Further, most direct services completely fell down when queries or changes were required that were less common, particularly later in the policy life cycle. Brokers really shone by comparison.

On the question of speed, the results were quite evenly balanced. In the case of the time taken to generate initial quotation figures, direct services (online) were consistently very quick, while some brokers answered quote requests by personal follow up.

The difference however was somewhat reversed when it came to mid-term changes, documentation requests and one off queries. The direct services often fell back to large call centres whose staff had little or no real insurance knowledge. In this area brokers were more efficient, making suggestions the survey’s consumers found highly useful, saving them lots of time.

On balance, the speed at which quotes were produced by the direct services was not significant to the panel of consumers when compared to the speed and efficiency with which brokers generally managed their policies throughout the policy life cycle.

When it came to peace of mind that everything is covered, RiskHeads saw very few surprises. Brokers were largely far more efficient at cross checking policies than consumers, and also very good at educating their customers, explaining what types of cover were available and answering queries.

RiskHeads adds that direct processes were better than in the past but put too much focus on the consumer to do this work himself/herself to be able to compete with the level of service provided by brokers. The really good direct services centred on only covering the low-risk policies, and leaving any consumer with non-standard requirements high and dry.

In terms of security of personal data, a difficult one to test, fell largely to RiskHeads’ technical team. In the case of internet-based services, the direct services tended to follow security guidelines marginally better than broker services, mainly due to the size of the organisations involved and lack of good software on the part of some brokers.

On the phone, however, it was a different story. Brokers, being far better equipped to deal with specific insurance questions and used to a human discussion, gave people a stronger feeling that they were in safe hands. The process of securing personal data was much the same as with direct, but the trust conveyed by brokers was better.

Also arguing in favour of insurance brokers, Tony Lenhoff, head of short term insurance at Sasfin, tells HomeTimes that many people approach direct insurance companies to look for the cheapest insurance. The policies you’ll be offered, however, are fairly generic. A broker, on the other hand, will find a policy that meets your individual circumstances.

“A broker has specialist expertise and can give you advice on the products that best suit your needs. This expert advice does not cost you more,” he says. “A broker will carry out a detailed needs analysis to determine your needs. This enables you to know your options. Direct insurers won’t always offer you every type of cover when you go directly to them.”

A broker will explain your policy to you and advise you if there are any special situations you need to know about.

“Your broker will also compare prices and product features from different insurers,” says Lenhoff. “The cover is more comprehensive than from direct insurers and they can also be more flexible on price than direct insurers. Brokers are aware of the policy terms and conditions including the benefits and exclusions.”

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alison-ht@pixelbaste.com

Alison Goldberg is the former property editor of Business Day (1985) and the Financial Mail (1991-99). In 1995 she won the Sanlam Financial Journalist of the Year Award. She has edited such titles as National Constructor and The Miner in Australia and has freelanced for The Star, The South African Jewish Report and The Jerusalem Post.

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