The car hire company never knows that you have it because the insurance you take out is for the excess only, not the full legally required car insurance. Most hire cars come with a basic insurance included in the cost, but with a massive excess charge if you damage the car. When you hire the car you accept the massive €2000 (or whatever) excess. If you need to make a claim, you reclaim the cost of the excess from the third party insurer and pay this to the car hire company. The third party insurance costs ~€40 per year. This is a much cheaper way of reducing your excess to a manageable amount than taking out the €15/day 'super cover' option from the car hire company.

EDIT: The car hire companies make a massive profit on the 'super cover' optional insurance.

If you are worried about the provenance of a financial services company, there are usually national regulators who maintain registers of companies that have to abide by certain standards. You should check that an insurer is on this register before taking out a policy, as well as checking to see if there are a lot of complaints about them on the internet.