Car insurance is highly competitive and the biggest area of competition is price. Most of us don’t need to use our insurance very often, so the only time we notice a difference between companies is when we get our renewal quotes. Of course, there are other differences between companies – some do provide better service than others. Unfortunately, it isn’t easy to find out which ones are best until the worst happens and you have to make a claim.
The result is that insurers compete very hard to offer the lowest possible quotes. Direct insurance companies try to convince you they offer the best deals because they don’t have any ‘middlemen’ – brokers, price comparison sites and other people who take a commission on every sale.
Although this sounds plausible, the truth is not this simple.
One of the biggest costs for insurance companies is the cost of acquiring new customers. Each new customer has an ‘acquisition cost’ to an insurance company – advertising, marketing, sales call centres and administration all have to be paid for.
When a broker sells an insurance policy, the broker is footing the bill for much of the advertising, marketing and administration that would otherwise have to be done by the insurance company itself. That’s why brokers get paid commissions by the insurance company – because the broker is doing some of the insurer’s work for them.
The result is that direct insurance (where you buy your policy directly from the actual insurance company) is not necessarily any cheaper than insurance purchased through a broker. The insurance company has to pay to acquire you as a new customer either way – and the costs of getting customers through a broker and getting direct customers are fairly similar.