how-much-are-you-paying-your-car-insurance-brokerPerhaps the question is presented incorrectly – and should read – “How much is your car insurance broker getting”. The answer should be no secret – and you SHOULD be told what this amount is! The Financial Services legislation in South Africa requires that a broker disclose to the client the broker commission and this should be displayed clearly on your car insurance quote/ policy.

Why are we asking this question?

This blog post is not any attack or criticism of short term and car insurance brokers. I am at present insured through a broker at a prominent Insurance Company – and I will admit to being satisfied with my short term insurance portfolio, policy and premium.

I have written a blog post titled Are insurers making it difficult to compare car insurance quotes? and made reference to the scenario of a friend whom I believe was grossly overcharged. She moved to a direct insurer and will be saving a lot of money on her monthly car insurance premium?

Should we blame the broker or the insurer if you are paying too much for your car insurance premium?
I believe that the broker will be more at fault than the car insurance company. The commission payable to the broker is a legislated/ regulated commission of 12.5% of your premium. The car insurance company will provide an insurance quote for your vehicle – and 12.5% of that premium will be the commission payable to the broker. This is a maximum amount and may not be more.

In answering this question and analyzing whether it might be better to go “direct” and consider a direct insurer – we need to reflect on the premium, the broker commission and the role of the broker.

What is your broker delivering for his 12.5%?

Before we criticize the broker and say that a rate of 12.5% of the premium is too much to pay – we need to ask whether your broker is delivering from his side. I believe that my broker is doing his bit – and I am comfortable to reward him for his services. There might however be many vehicle owners who only see their broker once – at the time of signing the policy – and perhaps again after an accident.

The professional broker worthy of earning his commission will be the one whom we can characterize as follows:

  • He possesses a specialized knowledge in the area of car insurance.
  • He is a hard worker – preparing to spend time with the client and to discuss in detail the offerings available in the car insurance industry.
  • He will save the client money – by providing the best insurance for that specific client and that specific vehicle.
  • His services will provide a better premium – hence a more affordable 12,5%.
  • He will provide regular feedback to indicate e.g. that the market value has dropped and that the insurance premium will be re-adjusted.
  • He will be able, in the event of car damage or loss, to manage the whole claims process on your behalf and put your mind at ease.
  • This will require professionalism, good communication, swift response times etc.

Should I use a broker or is it better to go direct?

This question is not as simple as it might seem. The answer will depend on a number of aspects that each vehicle owner will have to answer for himself. There might be a definite cost saving by cutting the middle man / broker from the process – but this might not be for every consumer and every insurance portfolio.

I would like to advise that you ask yourself the following questions:

  • How much do I know about car insurance and insurance in general?
  • Do I have a rather complex short term insurance portfolio or do I only have rather basic needs and property to be protected?
  • What is my monthly short term insurance portfolio worth in Rands and cents – and how much of this is going to my broker?
  • How much is it worth to me to have a personal relationship with a broker that I know well, see often and communicate with regularly?

Conclusion

The question of whether to go the direct or the broker route should not be merely a price comparison. It should be regarded as a value comparison. You need to compare what you are getting for your 12.5% – And if that is not an affordable premium, quality service and peace of mind – then there is value in rather going with a direct insurer!

Too few consumers know what they are paying, what others are paying and what they could be paying/ saving! There is no harm in gaining quotes regularly and to reflect on your financial and short term insurance portfolio. Ask around, communicate and don’t pay more than you need to!!

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One thought on “How much are you paying your car insurance Broker? Is that too much?

  1. Leon Liedeman

    I have always stated that the commission in the short term industry is too high and need to be regulated to say about maximum 10% minimum. I also believe that the policy fee is not neccessary as the broker already gets commisison. The New insurance laws amendment act intends doing that in probably removing the policy fee. I am however mindfull that the services rendered by a short term broker is much more than medical aid and other forms of insurance.

    The question about direct insurers are that they are lying when they say no broker fees. They are paid a fee never mind what it is called which is a broker fee. One must also be carefull with most of the direct insurers-most of them look at risk differently indirectly meaning “look for ways in not to pay claims” I think to counter the direct insurers springing up around corners is looking at their claims paying ratio,s. Also be very carefull they actually make their moneys by adding bells and whistles which indirectly have very low claims ratio,s and they are the under writers themselves so they make extra money on the added bells and whistles eg. complulsory funeral policy, credit life(most short term clients have life insurance), personal accident cover, Lifestyle assitance programmes, tyre sure, paint chip repairs, extended warrantees where most new and 2nd hand cars have extended warrantees,extended legal liability. Now add up all these “extra risks” and then find out how much commisison your direct insurers make from it and being the underwriters.

    Why do you want cash back- the 80/20 principal most people take out policies to pay claims when needed because the requirements to get cash back is so onerous unless it is straightforward like Pick a pay,s Smartchopper card where you simply buy and get points you leave it. If one look at the medical aid industry where most people had savings plans when it was a fad in the late 90,s- about 80% of all members are now on straightforward benefit plans.

    I will always support the Broker( I almost get the impression that the above article was written under disguise by a direct insurer who in a nice way wants to discredit the broker based short term insurance companies). One must look at the claims payment for clients provided that the claim was within the ambit of the law and not look for little excuses such as a LOUVRE being 9 metres up in the air and almost “Impossible” to break into and was not the point of entry and then the claim was rejected. Or if your vehicle is not inspected by our vehicle inspection centre we will not pay a claim when in an accident. I have never had those hassles with the TWO biggest most reputable insurers. They work on trust.

    If you want to be the judge of who these direct insurers are that try to undermine the industry by offering cash-how low can you go the FSB must ban this practice it is buying of business. They are prostituting. The cash incentive scheme is one of the factors that has put the world in the financial mess that it is, in most cases it entices people to spend more indirectly. Why is the FSB banning these practices. If one look at the directors of some of these direct insurers they are also the directors of companies offering unsecured lending and all they are interested is making maximum profit from the client. Most of them first entrap you with cheap premiums and then they come with their other offerings such as legal cover- are we all expected to become thieves.

    The proper broker will actually sit down with his/her client prospective client and look at ways in which to re-asssess risk and maybe reduce certain items on the policy. He/she will also warn his client against all the bells and whistles and mind you in the direct insurers policy in most cases you are not given a choice. it is a case of prioritising the finances of the client to show him/her in most cases except when calamity hit like retrenchment or major illness that they can affrod the two most basic of policies namely Short term Insurance and Medical aid(here they use fear tactics to sell people gap cover-this to my mind is not neccessary if you have medical aid). Most medical aids in any case have preferred doctors and specialists that do not charge additional fees, this is another topic for discussion and some of the medical aids actually crated these policies to make additional income.

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