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Do “Middle Men” cost the customer more?

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August 7, 2007
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This is my second post on the Direct Line vs Confused et al fight.

Direct Line’s first line of attack is that comparison sites are not open about how they are funded. There are two main ways of selling insurance. An insurer can sell direct to the public, or through a broker. A broker earns commission on policies sold. So surely direct writers will be cheaper? Well, in a word, no.

There are a lot of costs involved in setting up a direct writing insurance business. As well as having the insurance specialists required to manage the underwriting, you have to build your own computer systems, get a big office and staff your call centre and office to cope with sales and customer service, claims teams. Then you have to spend tons of money marketing your product and brand so that people know you even exist. You could have spent millions before you’ve even sold a policy.

That’s why many insurance providers choose to sell their products through brokers. It leaves them free to concentrate on insurance, while the brokers deal with the marketing, sales, customer service and front end staffing, all funded from the commission payment. Claims management specialists can be engaged to handle that side. All of this means that the insurers save plenty of money.

Brokers can be more efficient by offering cover from a range of different insurers – we have more than 40 on our panel. In the circumstances where one is not competitive, another may well be, so the customer wins, as a broker can offer a competitive quote in more situations than a standalone insurance provider.

Where do aggregators fit into this?

Aggregators present a special case, offering to the insurer (or broker) just the initial marketing stage of the transaction and generating leads for the insurance providers sales teams (or website).

As such they are usually paid a flat rate per policy go ahead, and in this respect are treated in a similar way to online affiliate deals, and the more traditional payment per policy deal negotiated with other introducers. Do these cost the customer more – almost certainly not, as the cost of marketing will already be factored into the cost of a policy, and aggregators are no more expensive as a source of business than other methods. Indeed they would be much, much cheaper to the insurer than a nationwide TV campaign, as favoured by Direct Line.

And, as we know from these advertisements, Direct Line absolutely hate “middlemen” like this and refuse to pay the comparison sites for introducing business to them in return for anything so very grubby as a cash payment of around £60.

However if you fancy yourself as a middleman yourself, you could always join the Direct Line affiliate scheme and introduce business to them in return for. . . er . .. a fee of £60.

A lesser man than me might suggest that that smacks of hypocrisy.

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