Buying insurance direct vs through a broker: what’s the difference?

Buying insurance direct from an insurer and arranging it through a broker can look similar on the surface. The differences show up in how the risk is assessed, the advice you receive, the options considered and the support available when your circumstances change or you need to claim.

There are different ways to arrange insurance. You can deal directly with an insurer, online or over the phone, or engage an insurance broker to help arrange and manage the cover.

Either approach can result in an insurance policy, but the process leading to that policy can be quite different.

For a business, farm or other operation with exposures that do not fit neatly into a standard insurance product, those differences are worth understanding before renewal.

Who are you dealing with?

When you buy insurance directly, you are dealing with the insurer or its representative and considering the products that insurer makes available through that channel.

A broker works between the client and insurance market. Depending on the service being provided, this can involve understanding the client’s risks, approaching suitable insurers, explaining available options and arranging the selected cover.

The distinction matters because choosing insurance is not only about finding a policy. It is also about identifying the exposures that need to be considered and understanding the terms on which an insurer is prepared to accept them.

Choice of insurer and policy terms

Buying direct generally means choosing from the products available from that insurer.

A broker may have access to a broader range of insurers and underwriting markets, including specialist markets that are not necessarily available through direct channels.

Depending on the insurer, the risk and conditions in the insurance market, there may also be scope to seek different limits, endorsements or other policy terms.

This can become more relevant where a business has unusual activities, higher-value assets, contractual requirements or exposures that need more explanation than a standard proposal process allows.

For a farm, for example, the insurance discussion may extend across buildings, machinery, livestock, liability, business interruption and vehicles. For a Livestock and Property Agent, the activities undertaken by staff can also affect the insurance required.

The important question is not simply how many insurers are available. It is whether the policy being arranged reflects the activities and exposures of the business.

“The useful comparison is not simply premium. It is what has been insured, on what terms, what advice sits behind the decision and what support is available when it is needed.”

Advice and documentation

Another difference can be the type of information or advice provided during the process.

Direct channels vary. Some transactions may largely involve factual information or general advice about the insurer’s products, while the services available through a broker will depend on the broker’s authorisations and the nature of the engagement.

Where advice is provided, it is worth understanding its scope, what information it is based on and what has been documented.

That becomes particularly important when a business changes.

New activities, additional locations, higher asset values, different contracts or changes to the way work is performed can all be reasons to review whether the existing insurance arrangements still reflect the risk.

What happens when there is a claim?

The distinction can also become more noticeable when a claim occurs.

A client who has purchased insurance directly will generally deal with the insurer’s claims process themselves. That may be straightforward for some claims. Where questions arise about the circumstances, evidence, policy wording or settlement, the client may need to work through those issues directly with the insurer.

Where insurance has been arranged through a broker, the broker may assist with the claim and communicate with the insurer, loss adjuster or other parties involved.

Depending on the circumstances, this can include helping to prepare the notification, gathering relevant information, reviewing the insurer’s position against the policy wording and seeking further explanation where an issue arises.

Broker involvement does not determine whether a claim will be accepted. The outcome depends on the circumstances of the loss and the applicable policy wording. The difference is that the client may have someone familiar with their insurance arrangements involved in the process.

Comparing the cost

Premium is an important part of any insurance decision, but a direct premium and a broker-arranged premium are not necessarily a like-for-like comparison.

The policy limits, sub-limits, excesses, exclusions, endorsements and breadth of cover can all affect what is being purchased.

Brokers may receive commission from insurers and may also charge fees for their services. The applicable remuneration and fees should be considered as part of the overall arrangement.

For the client, the more useful comparison is the total insurance arrangement: what is insured, the terms and limits that apply, the service being provided and the overall cost.

What to compare before choosing

Whether insurance is being purchased directly or arranged through a broker, there are some useful questions to consider before renewal:

• What risks and activities have been taken into account?
• Are the sums insured and policy limits still appropriate?
• What significant exclusions, sub-limits or conditions apply?
• Have changes to the business since the last renewal been considered?
• What advice or assistance is being provided?
• Who will help manage the process if a claim becomes complicated?

For a straightforward risk, the differences between the two approaches may be relatively limited. As a business becomes more complex, understanding how the insurance has been structured and who is available to assist can become more important.

If you are reviewing your insurance before renewal, RMA Insurance Brokers can help you examine the existing arrangements, identify changes in the business and consider the insurance options available.