Which is the wisest choice of insurer: direct, traditional or hybrid?

Most people are not aware that there are three different types of insurance providers out there. Understanding the difference can, however, affect the quality, cost and effectiveness of any insurance purchased.

Traditional insures have been around the longest. They deal with clients through brokers who develop close relationships with their clients and tailor the cover to best suit their needs.

Direct Insurers cut out the broker to deal directly with the client, usually through call centers and internet sites.

Hybrid insurers on the other hand provide a personalised insurance service more efficiently by using in-house professional service consultants. This cuts down on the costs of dealing with the broker and allows the client direct contact with the two people managing his insurance service.

“In a nutshell the difference between the three is their business models and how they service clients” says Gari Dombo, Managing Director, Alexander Forbes Insurance.

With traditional insurers the broker provides the client with a personalised route to the carrier.

Direct insurers deal directly with clients using mass media to market their products. They claim to save money by eliminating broker costs and offering lower premiums. Direct insurers have also developed a strong media presence through strong marketing and advertising initiatives.

Since direct insurers “have larger advertising budgets than traditional insurers, eliminating the broker does not necessarily result in reduced premiums” adds Dombo.

Dombo believes that consumers should look for insurers that combine the best elements of the Traditional and the Direct business models. In short, insurers providing both claims and service consultants effectively provide consumers with “their own broker who is also the insurance provider” says Dombo.

While insurers compete on price, the current price war raging between direct and the other insurers tends to disguise other differentiators, like the actual content of the offering - along with the ability of the insurer to deliver. “Using price as the sole guideline while ignoring the content of cover, or not investigating the payment history of a provider, is looking for trouble” warns Dombo.

Instead Dombo advises consumers to consider price only once they “fully understand the small print along with what is being covered, what excess they will be carrying and whether they are getting the best advice.”

Dombo believes that a hybrid business model “combining the strong relationship and trust characteristics of traditional insurance with the efficiency and convenience of a direct insurer is the best way to structure an insurance business in the current market.”