Debt happens to everyone. Consumers get into debt due to unforeseen circumstances such as disability, retrenchment, divorce or due to conspicuous consumption and poor money management. Most of the time however, consumers get into debt because of the latter. They fail to draw up a monthly budget and stick to it.
21 November 2013
Journalist Sean Binedell, from MoneyBags, compares car insurance quotes from direct insurers and brokers and comes up with some rather interesting findings.
I recently celebrated my 25th birthday and even though I am trying hard to hold onto my youthful ways, it is the little things that make you realise growing up and becoming a functioning member of society requires a change in mindset.
I’ve realised I can no longer recklessly brandish my credit card on shoes, clothes, the latest Xbox game to mention a few things. Expenses begin to pile up as you shut the door to the family home and enjoy the freedom that comes with renting your own pad.
Rent, insurance, groceries, DStv, and all the other essentials all add up. So when I realised my car insurance was up for renewal I decided to take the opportunity to compare prices not only from the direct insurers but from insurance brokers too. Not only did I want to find a competitive quote but I also wanted to investigate whether there was any truth to getting cheaper premiums if you go direct.
Outsurance, for example, is one direct insurer that claims you can save by ‘cutting out the middleman’. There’s a whole section on their website titled ‘Brokers vs. Outsurance’, which outlines why it’s better to go direct. They say that the average broker commission is around 15%, which is charged on top of insurance premiums every month. They also point out that brokers then charge a further 10% for administration bringing the total cost of broker commission and fees to 25%.
My hunt for a better comprehensive insurance quote, including roadside assistance, resulted in some rather interesting findings and my quotes were based on the following information:
I drive a 2006 Renault Clio 3 1.6 Expression which is valued at R60 000. This was my response to these standard questions I got asked:
How long have you been insured for? Six years.
How many claim free years have you had? Two years.
What claims have you made over the last three years and how much did you claim for? I’ve had one claim for R30 000.
When was your driver’s licence issued? – 2007
Have you had any extras fitted on your vehicle: No?
Do you have a security system: My car has a standard immobiliser.
Where do you park your car: I have an access controlled lock garage.
Insurer: Monthly premium/Excess
Alexander Forbes R592 R3250
King Price Insurance R520 R2500
MiWay R571 R2500
OUTsurance R698 R3000
Oakhurst Insurance R718 R3500
Auto &General R627 R3200
Budget Insurance R496 R3450
Regent Insurance R548 R2500
Virgin Money R620 R3450
Standard Bank R548 R3000
Average R593.80 R3035
Brokers Monthly Premium Excess
Edge Insurance R487 R2000
Accenture Insurance Brokers R458 R2000
1st Insurance Brokers R615 R2500
Sky T insurance Brokers R595 R2500
African Independent Brokers R438 R3200
Commrisk Insurance Brokers R603 R3000
Vision Brokers R489 R3000
Compendium R475 R3000
Superior Insurance Brokers R564 R3000
Rex sure Insurance Brokers R441 R2000
Average R526.50 R2620
Broker vs. direct players
I found that when it came to premiums, insurers were 13% more expensive than brokers. Direct insurers also imposed higher excesses – about 16% more on average than brokers did. If I my decision was based on price, I’d go with the brokers instead. The added advantage of brokers is that they can give you independent financial advice (something which call centre consultants are not allowed to do) and they can be the one to liaise with the insurer when it comes to claim time.
However, there were some advantages with the direct players too. When it comes to getting an instant quote the direct insurers generally won every round as they were able to give an immediate answer over the phone, which was very convenient. Unfortunately, it wasn’t as easy with the brokers. If I phoned a broker in the morning some were able to get a quote back to me by the end of the day but others took more than a day to get back to me.
I also found brokers’ application process cumbersome. Some emailed me a PDF that I had to print out and complete so it wasn’t as easy as it was with the direct insurers who simply punched my details into their system over the phone. With brokers competing with the direct players, I am surprised that they still request information in this old fashioned way.
Quickest service: Here the direct players beat the brokers because they were able to provide quotes instantly. Outsurance, King’s Insurance and MiWay all came back to me promptly.
Best Quote: Although some direct insurers like to claim that brokers are more expensive in this survey it was the broker that came out a top. In terms of premiums, African Independent Broker offered us the best quote, but the broker wasn’t as competitive on the excess charge.
Most expensive quote: Oakhurst, meanwhile, was the most expensive insurer and also applied one of the highest excesses.
It’s clear that consumers shouldn’t believe direct insurers when they say they can give you a better quote than brokers can. Shopping around proved otherwise. However, I found that by not committing to the quote immediately resulted in some insurance consultants being willing to drop the price even further to get my business so it pays to not jump at the first quote given by an insurer.
When we approached Outsurance with our findings Ernst Gouws, chief executive of Outsurance, responded: “I obviously have no idea how you did your research and what methodology you used. We quote thousands of potential new clients every month – young and old, rich and poor, fast cars and safe cars, etc. We then sign up more than 50% of people who called us for a quote. They would also have been shopping around elsewhere (or would compare our premium with what they currently pay). So, while we’re not the cheapest for each and every client who calls us, we are able to offer very competitive premiums to most people who call us. In fact, we are so confident that we can save people money on their car insurance that we’ve been offering the R400 cash benefit for almost 18 months going.”
Arnold van der Linde, president of the Financial Intermediaries Association of Southern Africa (FIA), also commented on our findings: “In specific response to the Moneybags article we would like to say that this buyer’s experience is typical across many life stages and personal lines shopping baskets. At the very least the discerning consumer should shop around by requesting one or two comparative quotes from brokers before making an insurance decision. Most importantly you should compare the cover, policy wording and all complicated intrigues (conditions and exclusions) to ensure a like-for-like comparison.
“There is something else the consumer should consider. Not only could you save around 13 % on your monthly premiums by dealing with a broker; but you will most probably also have a better claims experience. A study of insurance company books shows that direct insurers only pay about 52% of consumers’ premium at claims whereas broker-assisted insurers pay closer to 70%. The portion of the consumer universe that does business with brokers therefore receives 38% more in claims pay outs over time.
“It is true that some insurance brokers take more time to return with a quote. This is something that is best understood when you consider the broker-assisted business mode. A direct office can provide an immediate quote because they only have one product to offer (theirs) whereas many brokers have to scan the market to find you the best possible deal. At the very least this means that they approach two to three insurers on your behalf before coming back to you with the best match for your needs.”