How can a brokerage offer cheaper insurance than a bank?
In the case of mortgage insurance, it’s about segmenting the market into demographics, something lenders don’t typically do, according to Aline Barker, account executive at Rogers Insurance.
“Usually through a lender the coverage is more expensive and the main reason is because they blend smoker and non-smoker rates,” Barker said.
“When we go through the process of underwriting or offering coverage to an individual one of the things we ask right off the bat is if a person is a smoker or a non-smoker. Smoker rates are typically double non-smoker rates.”
Many homebuyers simply buy the mandatory mortgage insurance from their lender, the bank, because they don’t shop around. In addition, some lenders offer mortgage coverage exclusively from one insurer.
“Some lenders will refer their clients to selected broker or insurance company and that company will do the underwriting. But that doesn’t necessarily mean the client is getting the best policy based on their demographic,” Barker said.
“There are about 18 insurance companies in Canada that offer mortgage insurance and they all have specific demographics and their pricing is set according to those demographics.”
Then there are major differences with the policy itself, with brokerages offering more choice to customers than lenders, Barker believes.
“With our coverage, the policy is convertible, which means they can switch it for another type of life insurance policy, and they can keep it if they move lenders. The biggest thing is that the client is totally in control of that policy,” Barker said.
“With typical mortgage insurance, the lender owns the policy and assigns itself as the beneficiary -whereas with the product that we offer, the client owns the policy and they choose the beneficiary that they want to receive the death benefit. So it doesn’t have to be the lender and that beneficiary can be more than one person if they so choose.”
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