Perhaps 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?
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!!