As insurance brokers, we play the role as intermediary between you and the insurance company. Often times, we receive questions from clients asking, what the difference is between a broker and a direct writer?
Disclaimer:This information is based on how we view things at Ogilvy in my Personal Lines Department within the mandate of a broker in the Province of Quebec. However, I believe these are broker best practices, which is why we function this way, and therefore the information should serve as an excellent guideline and standard for how you can judge situations in insurance. It may empower you to ask your broker or agent or direct writer some questions about how they work, so you can understand and develop a strong relationship with a company who is the best fit for your needs.
According to the Insurance Bureau of Canada, There are 3 ways you can buy insurance:
- from a broker who deals with a number of companies and tries to find you the best deal; or
- from an agent who sells insurance for just one company; or
- directly from an insurance company, through a call centre and/or website (companies that sell insurance this way are called “direct writers”).
At Ogilvy & Ogilvy, we are brokers, we are independently owned and therefore when we work for you on your insurance policy, our mandate is to represent you. This differs somewhat than the two other ways of purchasing insurance through agents or direct writers. In both these scenarios the product offering represents one insurer only. They do not have access to other insurance companies and can not do a comparison of quotes for you.
If you have a great deal of time on your hands, you can become your own insurance representative and call many of these agents or direct writers and try and make sense of the insurance policies and make a decision on your own. Of the same token, when you have a claim, you will also be in a similar scenario. You will be the specialist representing you, and you will deal with them directly.
Before I proceed, I will ask you this question:
Do you check the reputation of a lawyer before you ask them to represent you? How about a financial advisor?
I suggest you entrust your needs to an expert in insurance who has access to various insurers and who can pull the information together for you to present you with proposals. In my opinion, this is a broker.
In the event of a claim, a broker is mandated to represent you and act as a liason between you and an insurance company. They are your expert.
"So why did my rates go up? What use was my broker?"
As brokers, we check all of our available markets, we compare this to the insurer you are currently placed with, then we proceed to negotiate with your insurer to get them to match or beat the competitions rates that we have found. An insurance company will adjust their rates, it is the brokers job to give feedback to the insurance company about how their adjusted rates are comparing to the industry and negotiate from there.
Once we do this, we present you with our best offer. The key here is to understand that brokers are all different. Each brokerage works with insurers of their choice. They have contracts with insurance companies and based on the number of policies they have with that insurance company, their loss ratio's (a measure of profitability) and their relationship with the underwriters at the insurance company, a broker as an individual and as part of a firm will use their expertise and knowledge to develop rapport and carry influence to negotiate.
In my opinion and experience, working in insurance for over a decade, a highly skilled and experenced broker will negotiate and fight for their client. Like with anything, the more you do something, the more experience you attain, the better you are at it. Think of Gladwell and his ten thousand hour theory...
As a consumer, you should understand and know who the broker is you are dealing with, and how long has the firm he or she represents been in service.
When you deal with a broker, it is worth understanding who are you dealing with.
A broker (in Quebec) is an advisor in the financial services industry, governed by a code of ethics and has a mandate to represent you.
This is why, some may have noticed, that brokers who are not independent or have significant portions of their business with one insurer are obligated by law to advise you of such. At Ogilvy, we are independent. We represent several major insurers and offer various options to insure your home, car, marine, etc.
A broker's ability to offer you competitive quotes depends on what they are looking at, and as a consumer this is what you should ask them before you spend 30 minutes of your time quoting your home (or car):
How many insurance companies will you be quoting me with and who are they?
I had a client contact us yesterday, and this happens often, they wanted to know why they got a lower price with a direct insurer - they wanted to know if we are brokers why we didnt get them the same price. I will explain this:
Brokers do not have access to direct insurers rates.
Direct writers do not share their prices with brokers. They have only one company. The have a strategy to write new business. They will often apply new business discounts just to attain the business. It is common practice for direct writers to increase rates after the first or second year. As with any insurer -direct or through brokers. If a huge discount is placed on a policy in the first year (deviating from an insurers rates) then it may occur in the following years that if the rates dont come into line with the original book rates, that discount will be adjusted to slowly come in line with rates.
I have never worked for a direct writer, I have always been a broker. I can not speak to how they increase their rates, what rules they have in place etc.
However as a broker, I can tell you how we work: We fight for our clients.
If we see a rate increase above the norm, we check our markets to see if it makes sense. Then after becoming informed, we contact the insurance company and we tell them about what we have found. Because we have a relationship with our insurers we give them a chance to come in line with the competition. If they do not, we move you to a new insurer that will offer you comparable coverages at the better rate. As part of this process, we will have a discussion with you to make sure we have enough information to provide you with what is best.
Many clients ask: Why did you send me this renewal if it was not your best offer?
I can not speak for all brokers, but I can tell you that insurers issue the renewals at the rates they want. It is up to the broker to receive this document (at the same time as the client) and review the renewal rates and coverages. More and more insurance companies are offering direct mailing to clients. What this means is that the broker and the client receive the renewal at the same time. Therefore, I can speak for our office when I say this:
"When your eyes pop out of your head because your rates went up 30 percent - somewhere in our office, there is a broker opening up the same envelope and having the same reaction."
The difference is, we jump on it, and we start checking our markets and calling our insurance companies to try and negotiate a new rate. You are our client, not the insurance company, we are in the same boat.
This is a shared journey.
The relationship between a broker and a client is a relationship. Brokers are humans, this being said, every broker is going to have their own way, their own abilities.
At Ogilvy, when that rate jumps 30% we jump too. Behind the scenes, you will not see this, we understand that you will just see the item in your mail, but if you trust your broker then you should always give them a chance to have the discussion and see what is the best thing they can offer after receiving renewal conditions.
We have a lot of success at rewriting and renegotiating policies. I would estimate 70% of the time spent in our personal insurance department is spent reviewing renewals and negotiating. Again, it is a relationship based on trust.
I offer you one last insight, based on conversations we have every day:
When a client gets his renewal, and we have presented them options, and we have worked out our best rates, we do sometimes get that phone call where the client will say "I just got it for $200 less so I think I will have to leave" - we respond: "OK, let me call your insurer back. I will see what I can do..."
The client will then say,
"If you could have gotten it for me for $200 less, WHY did I have to call you back to make you do this? You told me this was already your best rate?!"
This is the answer: We got your renewal, we checked our available markets, we negotiated the premiums. From all the information we had at the time, we did our best to match what we could see. However, we do not have the direct writers rates, nor do we have the rates of insurers we do not represent, so now that you are giving me additional information, you have helped me help you.
I as a broker would have had no other way to access this information without your help. Therefore, I am still your broker and I am still going to work for you, and I am going to call my insurer and let them know what you found, and push them to match the competition.
As brokers, we don't always win, but in the end it is your best interests we have at heart, and as part of our mandate - working together, we will make sure you always win.
Working with a broker is a partnership. There is a distinct difference between the broker and the insurance company. So why is it beneficial to work with a broker? Because the broker is mandated to represent you and use their knowledge to advise you. When you have a claim, the broker will know who you are, they will help you. When you call, the broker will understand and remember your history.
When the insurance company does not see who you are, the broker will represent you.
Some advice to make sure you have the right representative for you:
Ask them these questions:
1. Will you be my contact whenever I call? How does your office work?
2.How many companies do you represent?
3.How do renewals work in your firm, what do you do on renewal?
4.If I call you for a change, will you quote all the insurance companies for me again, or will you just leave me where I am? (Note that rates change regularly by the insurance company - brokers are aware of trends and have the ability to do research- find out how they use their abilities).
5. Ask the broker how often they speak with their underwriters or representatives at the insurance company. This will give you an indication of their inclination and comfort level in negotiating. Brokers can check rates with a computer program, or they can go further and negotiate. Ask them how often they speak with their reps. Do they call the insurers themselves or do their supervisors handle it for them? The question will surprise them, but the answer will help you assess their style.
Ask them questions that concern you and your insurance situation. Get a sense of the broker's values and polcies.
This is a shared journey based on trust. Work with your broker, find out what they have available, choose a broker who fits your needs and I am confident it will be a winning combination.
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