You’ve seen those adverts for insurance comparison websites, right? They may be all about saving money, but with competition so tight policyholders may potentially be losing out amid benefits exclusions and higher excesses.
A new AA-Populus study of more than 16,000 drivers found that 50% of respondents were not aware that purchasing a cheap policy from a comparison website could mean a lack of benefits such as windscreen cover or a courtesy car.
“Benefits are cut from policies in a process known as ‘hollowing out’ in order to reach the lowest possible price and thus increase the likelihood of a sale, while high excesses are also often applied to help reduce the quoted premium and this is not a good outcome for customers,” explained Michael Lloyd, the AA’s director of insurance.
The insurer has reacted to the Competition & Markets Authority’s (CMA’s) announcement that it is setting clear ground rules for all online comparison tools – including price comparison websites – and in fact has opened an investigation. The CMA did not publicly identify the one site that is subject of its probe, but several dailies have named Comparethemarket.com.
“The CMA report proposes further investigation into contractual clauses on pricing,” said Lloyd. “I’m glad that this issue has been recognised.”
According to the AA’s research, 52% expect to be able to buy cheaper cover direct from an insurance company’s website versus via a price comparison website. “But, often insurers are prohibited from doing so depending on contractual clauses imposed,” explained the provider.
The AA said: “Comparison sites, which charge a fee to insurers, often have restrictive clauses that limit insurers’ ability to discount premiums on other sales channels.” So it concerns the insurer that 37% “always” buy the cheapest policy they can, regardless of the cover inclusions – or exclusions, for that matter.
“There is also a real lack of transparency in these uncompetitive practices,” added Lloyd. “For example, most buyers will have little idea of the cost to insurers of business placed through comparison websites which, for car insurance, is over £50 for every policy bought.”
In terms of ‘hollowing out’ and increased excesses, Lloyd said more could have been done to support more effective comparisons. He believes buyers can end up with policies that do not fully meet their needs, when such factors are not made clear.
“Insurance is essential to consumers to protect themselves against the risks of everyday life and in the case of car insurance, it’s a legal requirement,” commented Lloyd. “Yet the law allows such important products to be trivialised on the basis of market promotions and high-cost TV and marketing campaigns as comparison sites compete with one another, which ultimately contributes to the cost of cover.”
Following a year-long examination, the CMA is also addressing issues such as how websites communicate their use of people’s personal data and the need to clearly display important information like price and product description.
“This is a good start and I hope further progress will quickly be made in levelling the playing field between insurers and price comparison sites,” said Lloyd, who believes that while such sites have helped in keeping premiums in check, buyers should recognise the difference between real value for money and a merely cheap price tag.
The UK’s primary competition and consumer authority has also recommended that all sites should make it known how they make money, how many deals they are displaying, and how they are ordering the results. According to CMA chief executive Andrea Coscelli, improvements are needed to help people get even better deals.
“We have set out ground rules for how sites should behave, as well as being clear on how regulators can ensure people have a better experience online. We are also taking enforcement action where we suspect the law may have been broken,” he said.
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