There are two types of insurance brokers, direct and traditional. We’ll take a look at both to help you make a comparison that will help you determine which one will be better for you.
Direct Insurers
Direct insurers are auto insurance companies that have realized that they can save money by cutting out the ‘middle man’. By dealing directly with the client, rather than paying a broker or intermediary, they are able to reduce costs and therefore offer lower premiums.
Because these companies do not have brokers to access the public for them and attract new clients, they use marketing tools to attract the client. By advertising your services through billboards, television, radio, print media, and the like, you pique the interest of the public. The Direct Insurer will then have a call center where a potential client can call and consult their services.
The caller will give all your details to the company directly, and there will usually be less paperwork than with an insurance broker. The common myth is that no commissions are paid at all within these Direct Underwriter companies, but this is not true. The commission is paid to the call center agent at the time of your registration, but that is a one-time thing. With traditional insurance brokers, the commission will be paid to your broker on an ongoing basis based on his or her monthly premiums.
Traditional Broker-Based Insurers
These auto insurance brokerages have been around for a long time, unlike the relatively new idea of Direct Insurers. Traditional insurance brokers have developed a very clear separation between customer service and risk management. The theory behind this is that by having separate specialized entities, each broker can develop closer relationships with their clients and offer them better service. Then the risks will be better understood.
So which one is better?
It’s hard to debate which type of insurer will save you the most money. At first glance, it may appear that direct insurers will be cheaper, especially when you consider that they have eliminated intermediary and therefore broker fees. It is wise to note that these companies also have much larger advertising budgets than traditional insurance brokers. Sometimes the money they have saved from brokerage commissions has been used for advertising to attract their clients. This will make your premiums more expensive. However, this is often the exception to the rule, and only by researching and comparing can you find the direct insurer that is best for you.
Traditional insurers can sometimes give you a better deal than direct insurers. This is especially so if you include the contents of your home on your insurance application. You will receive a discount when you decide to insure more than just your vehicle with one of these companies. Unfortunately, if you don’t need to insure your home’s contents when you purchase auto insurance, a traditional insurer may be a more expensive option.
In general terms, in some cases it is cheaper for the client to use a Traditional Insurer instead of a Direct Insurer, and vice versa. It is primarily based on your specific needs and insurance requirements.
