No two insurance policies are identical and one tiny clause in the small print can make all the difference. A policy may, for example, appear attractively priced but have an unusually high excess (the amount the policyholder himself must pay in the event of a claim).
Having a professionally qualified person able to select from the entire market has obvious advantages. Good insurance brokers can explain exactly what is and is not insured and avoid you duplicating cover you already have under other policies. They can also provide valuable assistance in the event of a claim.
Nevertheless, since the mid-Eighties brokers have experienced increasing competition from direct insurers, the best-known being Direct Line which cuts out the middle man and works exclusively by phone. Their main impact has been in car and home insurance.
Last year, however, clear signs emerged that direct insurers were losing their competitive edge. As their numbers have increased, so have the sums they must spend on advertising to attract business. Some, previously highly selective in the cases they took on, are having to sell to a broader range of risks to hang on to their market share.
It is now common for brokers to outquote direct insurers on some risks: the British Insurance & Investment Brokers Association says some of its members outquote Direct Line on car insurance 70 per cent of the time.
Most direct insurers deny any fall-off in competitiveness. They say brokers are either failing to compare like with like or quoting for cases direct insurers do not particularly want, and are therefore not competitive on.
We asked Direct Line to volunteer a case it definitely would want to take on and to provide information detailed enough to avoid confusion. It cited a 45-year-old woman living in Kelso in Scotland, the sole driver of a Peugeot 306 1.4XL and with a maximum no-claims discount. A comprehensive motor policy with a pounds 100 excess would cost her pounds 102.50 a year.
It also quoted for home insurance for the same woman living in a detached three-bedroom house built between 1946 and 1980, occupied during the day, equipped with door and window locks, and with the owner in a Neighbourhood Watch scheme: pounds 90,000 of buildings insurance (pounds 50 excess) would cost pounds 120.95 a year and pounds 20,000 of contents cover (pounds 50 excess) pounds 47.15.
We asked Hanson & Robertson Insurance Brokers, of Aberdeen (without telling it Direct Line's prices), to quote for the same cases, providing cover at least as thorough. Its quote for the car was identical and for buildings and contents it was pounds 40 and pounds l5 cheaper respectively. It should be stressed that this does not mean Hanson & Robertson, or other brokers, will equal or better Direct Line in every case.
Hanson & Robertson may also be more competitive than many brokers because it sells large volumes. Furthermore, some of the low rates quoted by broker-oriented insurers may prove unsustainable and thus rise at renewal.
Nevertheless, those who normally shop around among several direct insurers should also consider asking a broker for a quote in the current market.
Direct insurers have more consistent service standards than brokers but the very best brokers are able to deal over the phone just as quickly. They can also offer the option of a face-to-face meeting. Many value this at the claims stage even if they prefer the convenience of dealing by phone at the outset.