In the last 20 years, more and more direct insurers have flooded into the market, to grab a share of the lucrative “policy pie” (just call in and take your insurance out over the phone). Up until that point, your insurance broker was your only real point of call. If you wanted to take out insurance, your broker would pop around in the evening, after work, and get the paperwork completed, over a coffee. Times have changed though, and people don’t have as much time as they used to 20 years ago. Being able to phone into a call-centre, or even take your insurance out online is the direction things are quickly heading.
Is it better to take out insurance over the phone, with a direct insurer, or should you stick to seeing an insurance broker?
It’s a personal preference at the end of the day, with pros and cons on both sides. In this blog post, we are going to explore the benefits and negative aspects of going direct.
Why it makes sense to go direct
The last thing you want on a Wednesday night, in between sorting out dinner and getting the little ones bathed, is to have another meeting, right? Direct insurance is proving to be a popular model because direct insurers understand that people are busy – finding the time to squeeze a face-to-face insurance meeting, into an already overly burdened diary, is difficult for most people. Convenience in the 21st Century is key, and if you are busy, direct life insurance is easy and not very time consuming at all.
Using a broker force is an expensive distribution model. While the insurance broker’s remuneration is commission based (so he/she needs to sell a policy to earn money), having to pay hefty commissions over to brokers can be an expensive exercise for insurers. A far more efficient model is using a call centre to sell policies. The seat costs are fixed, and it is easy to work out quite accurately how much profit each seat generates for your business. The major cost is advertising, in order to get the phones ringing, but it’s cheaper in the long run than paying a broker.
That cost saving is handed down to the policyholder by way of cheaper premiums. It’s not always the case, but in most instances, direct insurance policies are cheaper than insurance policies sold by insurance agents, because the middle-man has been cut out of the equation.
Direct insurers offer general financial advice
Direct insurers can offer you general financial advice and they can sell you a policy over the phone, but if you are looking for more personalised, detailed financial advice, it’s better to go through an insurance broker. Insurance brokers are more likely to put together a customised policy for you if that is what you are after. They also have to disclose all information (such as excesses and premiums) and are held accountable if you’re not advised correctly. Both direct and insurance brokers are fully accredited by the Financial Sector Conduct Authority (FSCA) to give you advice.
Do you really need advice?
That depends. If you want to insure your car, you don’t need much advice, do you? You can simply call up a direct insurance company, state the facts, get a quote, and insure.
Advice around financial planning is something else completely.
There are 6 steps in the financial planning process worth mentioning:
- You meet with a professional financial planner.
- The financial planner will collect all your personal information.
- The financial planner will analyse your financial status.
- Based on the financial planner’s findings, they will present a plan with recommendations.
- The planner will advise on the next steps and action points (could include taking out insurance)
- The planner will set up a time for a review (normally annually)
Sounds cool, but isn’t the financial plan simply masking the fact that the financial planner wants to sell me something?
Financial planners and insurance brokers should be offering different services.
An insurance broker is brokering insurance products for a living. He/she is paid a commission on the sale of the insurance policy sold. A financial planner might recommend a policy (and could be remunerated by selling insurance), but the real professional financial planners charge for their time, rather than being paid by the insurer, if they sell a policy.
If you want a real financial plan completed which would include:
- Estate planning
- Retirement planning
- Investment planning
- Cashflow analysis
- Debt management
You need to pay for that service and it is worth the money spent.
Start out by asking a few questions, before you commit to anything:
- Do you charge for your financial plan?
- Is your remuneration strictly insurance commission?
- If you complete the financial plan, am I expected to take out a policy, based on your recommendations?
- Would you be comfortable if I took your recommendations and shopped around for comparative quotes (including what direct insurers will offer me)?
Some people like the direct insurance offering, and others prefer having a face-to-face relationship with someone they have built a relationship up with over time. There is no right or wrong answer when it comes to your preference. If financial advice is something you are after, it’s best to find a professional financial planner, who is prepared to charge you for their time. If you simply want to buy a policy, and you are happy to finalize that contract over the phone or online, then that’s also an option.
Need a quote? Click here.
Until next time.
The Wise About Life team