14/08/2012
INSURANCE - DIRECT vs INDEPENDENT ADVICE
There was a very interesting article in the Star last night relating to the understanding of the value of objective advice when purchasing insurance. This does bear out a lot of what I have said over the years relating to Direct insurers.
The managing director of Masthead, who provide objective advice to consumers, pointed out a number of issues:
- The most popular belief is that direct insurers offer cheaper premiums, as no commission is payable to the adviser. However, it is not well-known that consultants selling direct insurance is paid variable remuneration-this is not disclosed to consumers. (Not to mention that their adspend is virtually the same percentage of premium income as Insurers pay to Brokers)
- Direct insurers use pricing keenly to their advantage, competing mainly on this basis. They write new business at low premiums, often to increase these, sometimes quite substantially, at the policy anniversary or after the first claim.
- Many consumers basic decision to purchase insurance specifically on premium, rather than on policy wording with a track record of the company they are buying from, and therefore buy “blind" from direct insurers. He comments that to buy purely on price is an expensive lesson, and can come at a time when you can least afford it. Consumers are generally not aware of what benefits and features on which payouts occur are forfeited for the cheaper premium, and may be unaware of other applicable excesses until claim stage.
- Unlike direct sales operations, independent brokers offered choice and a comparison of benefits across various products and/or providers. They offer consumers more information on which to base a decision, and help them understand the trade-off between price and benefits, and advise them.
- While many consumers think that insurance is all the same, offerings from traditional insurers and direct insurers differ. The advice around offering also differs. Direct insurers tend to give information rather than advice: they tend not to unpack the finer details of the covers. Unfortunately, many of the pitfalls of direct insurance are often only discovered when consumers realise they cannot claim.
- In 2011 it was reported that a major direct insurer rejected 86% of claims, totalling R86-million. Some 55% of these claims were rejected because the policy was no longer in force, and policyholders were unaware of the lapse.
- More recent statistics show that a leading direct insurer pays considerably less claims in its traditional insurer competitors. This may be due to improved risk management (underwriting), but could just as easily be due to tougher claim settlement policies or higher excess charge. (The MD of one of the major Direct Insurers commented in an interview that they can turn down more claims, as, unlike conventional insurers, they do not have pressure put on them by Brokers to pay claims)!
And - as pointed out by one of my clients - anyone who thinks he has someone fighting in his corner when the only other party at the table is the one who has to pay out - is seriously delusional!
