Insiders Guide to the Insurance Business

Is it really possible to make serious money savings on your insurance bills without compromising quality of cover? If you understand how the industry works and follow my advice, the answer is 'Absolutely!' You need to understand that there isn't actually a fixed cost for insurance products and that if you follow some basic tips to navigate the process anyone can shave hundreds of pounds off their annual bill. In this article I'm going to focus on motor and household insurance but as this site develops I'll cover other products.
Let's begin with some basics. The UK industry works on a 'commission' basis ie when you buy your motor or household insurance the broker or introducer (eg bank, building society) is paid a percentage in commission for the sale. In motor insurance this is typically 10% so of your £300 premium Mr Broker receives £30 in payment from the insurer. I say 'typically' as in reality the commission rates vary depending on the scale of business the broker can introduce and their business relationship with the insurer. This is one area where you as the customer can apply some negotiating power. Let's look at an example.
Broker A is on standard 10% commission with the Insurer A. Broker B, however, has a special deal with Insurer A and in return for placing £5M a year of motor insurance business receives 15%. In practise the brokers can vary the rate they take to help them secure business. In our example, Broker A will receive £30 of your £300 premium but Broker B can potentially take £45. If Broker B really wants your business and you tell him you have a quote for less than £300 he can waive some of his commission to 'fund' a discount ie offer you the quote at £280 and take £25 commission (he's effectively paying away £20 of his £45 potential commission to you as a 'discount'). This is all 'seamless' of course - all you will see as the customer is that you have an identical policy with the same Insurer but that there is a money saving on the premium you pay.
The industry is incredibly competitive - particulalry for motor insurance - and the above example is a basic illustration of how and why premiums vary. When you follow this to more extreme scenarios there are brokers out there who will work on 'nil commission' and you will pay the 'net' price to the insurer - potentially big money savings to you the customer! So how do they make money, I hear you ask. Quite simply they work on the basis that you will renew the policy with them next year and hopefully beyond and that over your 'life cycle' as a customer they will turn in a profit from you. They will also try to 'cross sell' and 'upsell' you to buy other products such as Motor Breakdown, Legal Expenses cover and potentially Home Insurance and other non-related products - all of which carry their own commissions.
Recent years have seen the arrival of quote comparison sites such as 'Confused.' You may know these as 'screen scrapers' but inside the industry they are called 'Aggregators' and are seen by many as a threat to the future of the industry. In my next article I will explain how these actually work and how as a customer you can truly ensure the best product at the best price.