Is It Better to Use A Broker or Go Direct?

There is a marked behavioural shift among consumers of insurance products in South Africa when it comes to buying short-term insurance. Only about two years ago, direct purchase of insurance was observed in about 20 per cent of all insurance policies bought, but in recent months, this proportion has risen to around 30 per cent.

It has always been possible to buy insurance direct from the insurers, so the idea of direct insurance is not entirely a new thing to the South African consumer. What has changed in recent years is the manner by which it is done. Direct insurance is now sold through the Internet or over the phone.

Advantages of going direct

Convenience. The advent of the Internet and mobile phone technology has made it easier for consumers to purchase insurance direct. The new technologies make it easier to obtain information about insurance products, compare their various options, and complete the application forms. And, if you are using the Internet, you do all of the research and comparison shopping on your own time.

Cost reduction. Direct insurers are able to realise cost-efficiencies by selling insurance direct to the consumer without passing through a middleman. Aside from the calculations for risk, the premium rates for insurance are also influenced by the individual insurer’s claim-processing costs, sales costs and other overhead costs, which vary from one insurer to another. Because they are able to sell insurance direct reduces their sales costs (no more commissions paid to middlemen), direct insurers can pass on their cost savings to the consumer.

Advantages of using a broker

Advice from a professional. An experienced broker has, over the years, become expert and specialised in the art and science of looking for the best insurance deal that fits a particular customer. As a customer, you become interested in insurance issues only when you are about to purchase insurance; the broker deals with insurance every day of the year and knows so much more about insurance issues.

The years of experience as a professional in the business are not something a consumer can match with a few days of research, particularly changes in regulations covering financial services and the insurance industry.

Broad market/price information. Even the most diligent customer will probably not go beyond looking at five different insurance offers before deciding to choose one product. The convenience of the Internet may be boundless, but the normal person’s attention span is not; the phone also offers convenience but the person at the other end knows only about one product — that of his or her company — and you would have the patience to call only a few companies. With so many insurance products in the market, you will not really know if you have looked at the best possible deal for you.

A broker represents many different insurance companies and is familiar with their different products and associated prices. Provided that the broker knows enough about your particular circumstances to gauge your insurance requirements, the broker can offer you a much broader range of options than you would be able to generate yourself. This helps you find the product with the best value for you and make the most informed decision.

Broker or Direct?

The best test of whether it is better to use a broker or go direct may be to consider what would happen when the event for which you bought insurance occurs and you need to file a claim.

If you believe that you know enough about the process of assessing claims and the complicated details of limitations and exclusions that you can successfully get settlement of a claim, then it should be worthwhile purchasing your insurance direct.

If you believe that you need an intermediary who knows more about handling a claim and has a stronger relationship (i.e. clout) with the insurer than you, then it will be better to use a broker.