Should you manage your insurance risk on your own or with the help of an expert?
South Africa has more than 40 companies offering short-term insurance
With so many options available on the market, many consumers, especially first time insurance buyers, question whether to shop around for insurance themselves or to enlist the help of a professional.
"The decision ultimately lies with the consumer but choosing the right insurer to protect your valuables requires due diligence."
"You spend a lot of money, and time acquiring your assets, so it makes sense to protect them appropriately."
Whilst insurance is a serious matter and shouldn't be purchased impulsively, deciding on which insurer to go for need not be difficult: "A few pointers can be taken into account when considering whether to solicit the help of a broker or to use a direct insurer."
It all adds up
Whilst maximising the value of your money is important, do not base your decision on which insurer to go for solely on price or the promise of low premiums.
"It is a myth that using a broker is more expensive than going direct because you effectively cut out the middleman."
Consumers need to be aware that the cost structure of direct and intermediated insurers is generally structured differently. For example, included in the acquisition costs of an intermediated insurer are commission and management expenses.
For the direct insurer, these costs are made up of direct marketing and management expenses; this means that the cost of customer acquisition is often at the same level for both.
"There is no commission involved for direct insurance yet consumers are not aware of the high marketing costs, which also form part of acquisition costs".
Is it the best deal for you?
In this digital age where services are available at the click of a button or a phone call, going to a direct insurer may be ideal for some consumers.
"It works for some consumers, because they can research, compare quotes and purchase policies on their own."
"However they need to ensure that they are equipped to compare the value propositions of these policies and that they understand the terms and conditions as well as understanding factors such as limitations and exclusions of the policies to see if it meets their particular insurance needs."
When it comes to using a broker, the value to the policyholder is that a broker has the experience and knowledge to properly understand short-term insurance products and can therefore provide valuable advice that is not just based on the promise of cheaper premiums.
This expertise means the broker has access to a selection of products from a number of insurers so they can compare, obtain and negotiate the best deal for customers.
In addition, brokers can assist with risk assessment to ensure that a customer is adequately insured. Brokers provide advice on how to reduce risk, which ultimately translates into discounts from insurers.
After the sale
It is important to consider what happens once a customer has purchased insurance, has a query or needs to update a policy.
In the direct model, a customer would need to contact the insurer through a call centre, which is time consuming for the customer and can take up to an hour of their time, fill out an online form or browse through the company's FAQ section on the website.
When using a broker, the approach is personalised and a customer is able to update information through a simple phone call or email and deals with the same person everytime. The broker can also immediately assist with queries or advice.
"A broker is also held accountable by the FSB (Financial Services Board), so he needs to be ethical and disclose all information to you correctly during the entire life cycle of your policy."
"For many this offers the reassurance that they have a professional on their side all the way."
Moment of truth
When it comes to short-term insurance, the moment of truth comes when a customer needs to claim.
If a customer believes that they know enough about the process of assessing claims, details of limitations and exclusions and that they can successfully get a settlement of a claim on their own, then purchasing insurance from a direct company is suitable.
However, what if the insurer declines the claim on some technicality that was never properly explained or understood by a customer? For some consumers, taking this challenge on is not a problem but for some it could become a time-consuming and harrowing process, especially if they are not experts on insurance.
A broker is able to underwrite a risk according to a customer's profile right at the beginning of the claims process. He or she will also handle the claim on behalf of a customer.
"Whilst the decision on which insurer to use rests with the individual, the ombudsman continues to urge consumers to seek professional advice prior to the purchase of insurance policies.
He also advises that customers should speak to a broker, or someone knowledgeable, about insurance. This will ensure that there are no nasty surprises when the need to claim arises."
Article courtesy RISKSA