Ours is a self-help society, driven by the myriad opportunities offered by technology and the internet. Bank tellers, travel agents and estate agents are under threat as consumers cut out the middle man. Over the last decade or so, the insurance industry has been particularly affected, with consumers bypassing the broker and “going direct”.
The direct route is now well established, particularly for personal lines policies. Insurance companies with large broker networks have lost market share to younger companies that bombard you with TV adverts and offer you instant cover over the phone. It’s simple, convenient, quick, and costs less …
But is it, and does it? Insurers with broker networks argue that the extra time and effort involved, if any, in using a professional broker rewards you handsomely in the added value the broker brings. And your premiums are not likely to be higher – the increased competition among insurers for your custom has ensured that pricing is competitive across the board.
Another reason for people bypassing brokers is a possible lingering perception that brokers don’t have your interests at heart – they sell you a policy, reap the ongoing commission from your premiums, and you never hear from them again. But the regulatory changes in the financial services industry over the last decade, which have been overwhelmingly in favour of you, the consumer, mean that you can expect a professional level of service from your broker (see “What’s required of your broker”, below), and if you don’t get it, there are various routes of recourse open to you.
EASIER AND QUICKER
Let’s first consider the view that going direct is quicker and more convenient. Mike Glasby, regional head of broker services at Santam, says that if you contact a direct insurer, usually via a call centre, you must answer a list of questions, perhaps even more than a broker will require of you, and you will get only one quote for your trouble. The difference if you use an independent broker, he says, is that for one question-answering session, you will get multiple quotes, and the broker will be able to advise you on your options. And it is not as if brokers are lagging behind when it comes to technology. “They are equipped for multi-quoting using similar digital access and telephony systems,” Glasby says.
A broker can also offer the very personal option of chatting face-to-face, and he or she brings many years of experience to the table. You are likely to be asked more probing questions, ensuring that you are correctly risk-rated and that the policy you choose is appropriate to your needs. This is in contrast to dealing with call-centre agents, who are required simply to tick boxes, and with whom you can never build any sort of ongoing relationship.
A big drawback of going the direct route, Glasby says, is that you don’t get an objective opinion of your risk. The product provider is the same party that advises you on what to buy. You may not be aware of other products that may have better solutions for your specific needs.
Whether you are answering risk-related questions over the phone or face-to-face with a broker, your responses to those questions are material to your contract with the insurer. If you end up making a wrong statement, it could backfire, with the insurer rejecting your claim. It is in the broker’s interests that you answer the questions correctly, Glasby says, both in terms of his legal obligations, which are prescribed to him by the Financial Advisory and Intermediary Services (FAIS) Act, and professionally. “He needs to demonstrate the value of his advice, and this is captured in his risk assessment of you, which is required under the Act.”
Despite what direct insurers may say in their advertising, it is not necessarily cheaper to cut out the middle man. Insurers that use brokers pay ongoing commission on premiums, as opposed to direct insurers, which pay call-centre agents a once-off commission, but they have realised they have to compete on price with direct insurers.
“We have various optimisation strategies and systems in place to be as cost-effective as possible. Insurance rating has become both client-centric and more technical. Today, most insurance companies use a number of different factors to calculate a specific rate to charge you. This rating depends on your specific risk profile. We have confidence in our rating level, because we often gain new clients that were previously with companies that do not use brokers,” Glasby says.
It may be difficult for you, the consumer, to compare quotes from insurers, because they may risk-assess you differently, require different levels of excesses, and/or offer different “bells and whistles”, such as no-claims bonuses. This is an added reason for relying on the expertise of a broker in making a decision.
On top of your premium, which includes the broker’s commission (15 percent of your premium, on average) some brokers will charge you a relatively low broker fee of not more than five percent of your premium. They may also fulfil certain administrative functions on behalf of insurers, for which they are paid administration fees.
The law demands a high level of disclosure in this regard, Glasby says. The broker must disclose to you all his or her commissions, remuneration and fees when you take out a policy.
It is in what happens after you have been sold your policy, particularly when it comes to lodging a claim, that demonstrates the real value of a broker.
“A good broker should have a specific discussion with you at every renewal to advise and assist you. He should be available to provide you with technical advice and help with the claims procedure and even conflict resolution if that becomes necessary. A good broker combines technical, legal and industry knowledge gained from years of experience to guide you, and provides invaluable assistance in negotiating terms for policies and resolving claims,” Glasby says.
SPECIALISTS AND GENERALISTS
Brokers may be specialised in the area of short-term insurance or they may be financial advisers who offer short-term insurance as part of a broader range of services and products they are licensed to provide. Insurance companies use both types of broker in their distribution networks, Glasby says, but whether you use a financial adviser or a specialised insurance broker, certain standards and requirements must be met.
“They are both obliged to be registered financial services providers with the Financial Services Board and must comply with the requirements of the FAIS Act. This addresses things such as disclosure, risk assessment and rights of recourse. The specialised broker will be able to assist with advice on more complicated risk exposures that are encountered in the commercial world, while the adviser would also sell life and investment products,” he says.
Brokers receive ongoing professional education through regular conferences and workshops. Relationship managers from the insurance companies regularly call on brokers to help with service.
“Santam has a complaints line for consumers, and follows up any complaints about brokers directly with them on behalf of customers,” Glasby says.
ROUTES OF RECOURSE
If you have a service- or claim-related complaint, your first port of call is your broker. The next stop is the insurance company, which by law is required to have an internal complaints resolution procedure. If you still do not get your complaint resolved to your satisfaction, you can contact Nolunthu Bam, the FAIS Ombud, for advice-related complaints (phone 012 470 9080) or the Short-term Insurance Ombudsman, Dennis Jooste (phone 0860 726 890).
WHAT’S REQUIRED OF YOUR BROKER
Your insurance broker must comply with the general code of conduct for financial services providers under the Financial Advisory and Intermediary Services (FAIS) Act. He or she must also, if registered to sell a product by a member of the South African Insurance Association (SAIA), abide by the SAIA’s own code of conduct, which applies specifically to insurance companies and their brokers.
Under the FAIS Act, your broker must:
* Make reasonable enquiries to assess your needs and objectives, having regard to your circumstances;
* Fully explain to you the terms and conditions of your policy;
* Disclose his or her fees (commission and broker’s fee), and of any projected increase in either the fees or your policy premiums;
* Provide you with a policy schedule, which must contain the identity of the insurer and all relevant terms and conditions; and
* Inform you of any changes to the conditions of your policy and inform you if your policy has been cancelled.
The requirements of SAIA members are as follows:
* The sales process must be conducted in a fair, honest and transparent manner;
* All information used in the assessment of your risk, such as whether or not your house has a thatched roof, for example, must be obtained at the time of underwriting and not at claims stage;
* The broker must help you to insure your assets for the correct value. (The onus remains on you to ensure that they are insured for the correct value, but it is expected that the broker will help you to do this);
* The broker must make every reasonable attempt to ensure that you understand the policy documents, the extent of the cover, the key factors that affect the premium, the exclusions, the special terms and conditions, and all relevant aspects of the policy including excesses, the relevance of regular and nominated drivers (if applicable) and no-claims bonuses;
* The broker must keep your information strictly confidential;
* Disclosures about fees and premiums must include the due dates for premium payments as well as the consequences of non-payment;
* The broker must advise on how to lodge a claim and give you the forms to do so;
* Once all the necessary documentation is received by the insurer and no further investigation is needed, you must be informed of the outcome of a claim within a reasonable time;
* Should the insurer reject your claim, reasons for its decision must be provided in writing, and you must be informed about the insurer’s internal complaints procedure as well as external avenues of recourse available to you, such as complaining to an ombud.
* On motor vehicle cover, SAIA member companies must reassess the value of your motor vehicle at least annually, without any prompting from you, the policyholder, and readjust the sum insured and, if necessary, the premium accordingly. Note that there are other considerations in the calculation of your premium, which must be explained to you.
* Brokers of SAIA members are encouraged to communicate with you regularly and to stress the importance of informing the insurance company, through the broker, of any changes in your circumstances that might affect your risk to the insurer.