Why use a Broker?

Today’s short-term insurance products offer many excellent and innovative benefits and features. These are often overlooked because the main focus is on the price of the product. Price is, especially in today’s economic climate, an important consideration. However, being accurately, adequately and correctly insured is at least as important a consideration. Focusing on a low premium only may compromise the cover provided and leave the customer with limited or no cover following some events. This scenario is more often than not only discovered when a claim is submitted. The insured then finds him/herself in a position where s/he may need to abandon or withdraw a large portion of his/her claim to bring it in line with the cover, as provided. This predicament could be avoided by agreeing with the customer at inception to exclude certain covers and then offering a more affordable premium for the cover actually being provided. This way all parties are aware of the extent of cover that is provided and purchased, thus avoiding surprises at the claim stage.

Our industry is based on the principle of utmost good faith which presupposes trust and integrity. These values are strengthened as the customer/company relationship grows. They are being undermined and marginalised as often insurance transactions are conducted over the telephone. The days of having a broker or consultant meeting with an insured to review the accuracy and adequacy of the required cover is rare. The importance of such a review, at both inception and annual anniversary date, is enormous and should not be undervalued. This can be illustrated in the application of the average clause on householder’s insurance, which is virtually a daily occurrence when processing claims. Although the application of average is explained to the customer at inception, the adequacy of the contents sum insured is seldom addressed again. A price cannot be placed on the value of having an inventory completed, at policy inception and at the policy anniversary.

Insurers have, to a large extent, replaced traditional underwriting and rating principles with scientific underwriting and rating engines to assess and accept risks. The accuracy and veracity of the information supplied is critical in order to obtain the correct rating and underwriting requirements. However, the value of good old fashioned advice delivered by a knowledgeable and experienced broker cannot be underestimated. In a direct relationship this advice is largely not being sought, and from the customer’s perspective price is the main focus when purchasing their insurance cover. The sale based mainly on price is quick and easy for all parties concerned and, ironically, this sale in itself may come at a ‘price’. That ‘price’ includes a less than thorough understanding of the policy wording (which is generally posted to the customer, is unlikely to be read thoroughly and may not be fully understood), lack of awareness of any warranties the policy may contain, and only a cursory understanding of the consequences of average. It is not always possible, and is largely not practised, that the contents of these documents are thoroughly explained to the customer over the telephone, often there is simply too much to go through and the customer tends to lose interest. It must also be remembered that the customer’s insurance needs and circumstances will change over time, and as such it is important that, at the very least, an annual review procedure is put in place and, together with the insured, the cover is reviewed.

Customers that are sold on price inevitably move on price. It is well-known that the costs of acquiring a new customer far exceed the costs of retaining an existing one. Thus those whose purchasing decision was based on price will be difficult to retain and will be constantly reviewing their insurances chasing the lowest premium. The consequence is that a company’s resources will be stretched in looking for new clients, rather than maintaining a good relationship with their existing ones. By focusing on the price, the customer may not be aware that an inferior insurance product may be purchased at a low premium. Completing full insurance needs analysis at inception may also result in the consolidation of insurance policies. Often a customer will have more than one policy in force for motor and non-motor risks which are placed with different insurers. The consolidation of these policies on to one product base may result in a premium saving and even greater benefits for the customer as all of his insurances are with one insurer. It will also result in only one invoice being presented to the customers, instead of several – an additional saving for all parties.

In conclusion, price should not be the main consideration when purchasing insurance cover. Specific consultations with an intermediary regarding the insurance requirements must be thorough to ensure that the cover purchased is appropriate and remains as such during the continuance of the insurance policy.

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