How much are you paying your car insurance Broker? Is that too much?

Apr 29, 2010 | by Christopher Allen | No Comments »

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?

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!!