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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 best for you.
direct insurer
Direct insurers are car insurance companies who have realized that they can save money by cutting out the ‘middleman’. By dealing directly with the customer, instead of paying a broker or intermediary, they are able to cut costs and therefore offer lower premiums.
Because these companies do not have brokers reaching out to the public for them, and bringing in new customers, they use marketing tools to woo the customer. By advertising their services through billboards, television, radio, print media and the like, the interest of the public is aroused. The direct insurer will then have a call center where a potential customer can call and inquire about their services.
The caller will give all their details directly to the company, and there is usually less paperwork involved than with an insurance broker. The common myth is that no commission is paid within these direct insurer companies, but this is not true. A commission is paid to the call center agent upon your signup, but it is a one-time thing. With traditional insurance brokers the commission will be paid to your broker on an ongoing basis based on your monthly premiums.
traditional broker based insurer
Unlike the fairly new idea of direct insurers, these car insurance brokerages have been in existence for a very long time. Traditional insurance brokers have developed a very clear separation between customer services and risk handling. The principle is that if you have separate specialized entities, each broker can develop a closer relationship with its clients and serve them better. After this, the risks can be better understood.
So which one is better?
It’s hard to argue which type of insurer will save you more money. At face value it may seem that direct insurers would be cheaper, especially when considering that they cut out the middleman and therefore the broker fee. It is wise to note that these companies have much larger advertising budgets than traditional insurance brokers. Sometimes, the money saved on brokers’ commission is used for advertising, to entice their clients. This will make your premium more expensive. However this is usually the exception to the rule, and only by researching and comparing will you be able to find the direct insurer that is best for you.
Traditional insurers can sometimes offer you a better deal than direct insurers. This is especially the case if you include your home contents in your insurance request. You will receive a discount when you decide to insure more than your vehicle with one of these companies. Unfortunately, if you do not need to insure your household contents when you obtain car insurance, you may find that a traditional insurer is a more expensive option.
Generally speaking, in some cases it is cheaper for a customer to use a traditional insurer as opposed to a direct insurer, and vice versa. It is mostly based on your specific needs and insurance needs.
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