The AA has given a cautious welcome to the Competition & Markets Authority (CMA) final report on its investigation into digital price comparison tools, including price comparison websites.
Comparison sites, which charge a fee to insurers, often have restrictive clauses that limit insurers’ ability to discount premiums on other sales channels. This leads to a focus on policy price, rather than the cover offered, reducing an important element of choice.
A recent study of over 16,000 drivers suggested that price is the predominant factor in buying decisions. A third of those asked said that they always buy the cheapest policy they can to the exclusion of considering the level of excess or other benefits that the policy offers.
Nearly three quarters of drivers aged 17-24 expect to buy cheap insurance regardless of what cover the policy provides. In addition, more than half said they expect to be able to buy their cover cheaper direct from an insurance company’s website, rather than through a price comparison website. But, Insurers are often prohibited from promoting their products on price comparison sites for contractual reasons.
Michael Lloyd, the AA’s Director of Insurance says:
“There is also a real lack of transparency in these uncompetitive practices. 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. Very often, at renewal, an insurance company would rather discount an existing customer’s premium, than pay to obtain a new customer because of the price comparison site fee.”
The research found that half of respondents were unaware that if they buy a cheap policy from a comparison website, it could exclude benefits such as windscreen cover or a courtesy car and may also have a higher excess than they expected.
“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 often applied to help reduce the quoted premium and this is not a good outcome for customers. These factors not always made clear and buyers can end up with policies that don’t fully meet their needs.
“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. 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”.
Another concern identified by the AA is that nearly two-thirds of drivers believe that by registering on a price comparison site, their personal data will be used against their will. The CMA has set out ground rules for price comparison websites to communicate how such data will be used.
“Car insurance prices have been rising rapidly over recent months thanks to unwelcome government interventions. Higher prices intensify competition. Finding the best cover and the best value for money isn’t straightforward – there is a lot wrong with a market which puts a focus on big discounts for new customers and encourages shopping around at every renewal, which in turn stifles opportunities to reward loyalty. I’m pleased that the CMA’s findings recognise this and that there is more work to be done”.
It’s important that insurance buyers keep in mind that there is often a big difference between a cheap price tag and real value for money.
Geoffrey Simmons Insurance Consultants LLP
35/36 Windmill Street, Gravesend, Kent DA12 1AS
Tel: 01474 359117/8
Fax: 01474 567852