Five myths about
direct insurance
1. Most drivers buy direct insurance thinking it is cheap — but is it actually not cheap?
Q
Direct insurance is advertised as being 15% cheaper on average, but that is only because it is compared
with other companies' products that cost more. Many companies sell cheaper products, so the claim is not accurate.
A
If you visit each company's website, you will see that its direct products are at least 17% cheaper than
its own offline products (sold through regular agents). That figure excludes not only commissions but also
substantial intermediary margins such as branch overheads.
2. Is direct insurance a stripped-down product without an agent?
Q
Direct car insurance is like a product sold at a factory outlet.
Because it is not sold at department stores or specialist retailers, after-sales service can be very inconvenient.
With ordinary products, consumers simply buy and use them, but with insurance, after-sales service is everything —
so inconvenient service is a serious problem.
A
With direct products too, accidents are reported to the insurer and a claims handler is assigned.
Have you ever seen an agent rush to the scene because you signed up through a broker?
Has an agent ever negotiated an accident settlement with the other party for you?
In every case, the enrolling agent only helps with the application and has no authority to handle accidents.
What's more, claims staff are assigned at random — there are no separate handlers for broker contracts
and direct contracts.
3. Do direct insurers often have small claims teams?
Q
Direct car insurers have fewer policyholders, so their claims teams are often small.
On top of that, direct insurers often outsource claims handling to established insurers, which could put
policyholders at a disadvantage after an accident. For example, if a customer of a direct insurer collides with
a customer of the established insurer handling its claims, the claims staff may rule in favor of their own
company's customer rather than the direct insurer's.
A
That was the story ten years ago. Direct car insurance now holds more than 50% of the market.
Outsourcing claims handling was only an early business model; today each company uses the same claims
organization for all of its policies.
4. Do direct insurers often restrict who can sign up?
Q
Compared with conventional car insurance, direct car insurance often discriminates on conditions such as
vehicle type, region, occupation and driver age, and frequently refuses applications altogether.
A
Being direct does not mean restrictions on vehicle type, region, occupation or driver age.
A given company applies the same underwriting conditions. When someone has many accidents or has let a policy
lapse, the insurer assesses whether to accept the contract based on loss ratio.
Applications are never restricted simply because the product is direct.
5. Are direct insurers unstable — for example, being sold off?
Q
Kyobo Auto Insurance, a leading direct car insurer, was sold to France's AXA, and the number-two company,
Daum Direct, was sold to Germany's ERGO. Direct car insurance requires constant spending on large telephone sales
teams, costly telecom and IT systems and big advertising budgets, and customer service ratings are poor —
note that it is a business model that failed to take hold in the US, Japan and Europe.
A
It is no exaggeration to say that every non-life insurer in Korea has now entered the direct market.
All the major companies have launched their own direct brands on a stable footing,
so there is no need to worry about them being sold.