In recent years there has been rapid growth in the number of comparison websites for general insurance as well as the consumers using them, in particular for products such as home and motor insurance. Industry figures suggest that almost 25 percent of all private motor insurance sold in the UK during 2007 was initiated in this way. But is the fierce competition for internet buyers leading to inappropriate selling tactics? A review of price comparison websites was launched by the Financial Services Authority (FSA) after research commissioned by the British Insurance Brokers Association (BIBA) showed potential for serious consumer detriment. In particular, some 84 percent of insurance buyers questioned said that the details of insurance policies offered via price comparison websites can be confusing.
The FSA's review took a snapshot of the current market to determine whether insurance comparison sites are behaving in a way which treats customers fairly, and in particular, whether the information provided to consumers is clear, fair and not misleading. The findings revealed several shortcomings:
Use of Warnings and Prompts: Comparison sites with warnings or prompts do not always provide consumers with sufficient information to act upon them. In one case, the applicant is told that certain assumptions had been used to generate the insurance quotation but there is no opportunity to review them.
Incorrect Excess - A Key Pricing Factor: Rightly or wrongly, price is often THE key purchasing factor; consequently the level of excess is critical in judging whether a quoted premium is competitive. Price comparison sites should provide information on this that is "clear, fair and not misleading". However, cases were found where the excess was given as a "total" whereas it excluded the compulsory excess. In other cases the information provided on the level of excess was substantially incorrect.
Basis of Comparison: Providing the ability to compare products is at the heart of what insurance comparison sites should be trying to achieve but they are doing it with varying levels of success. Sites only compare a limited number of product features, and in particular where price is the only feature considered, consumers should be given a clear and timely warning when deciding which policy to purchase that:
- Other features should also be taken into account.
- The products listed will have different features (not all of which are listed) which may vary greatly.
Only a small number of firms provided this information. Where it was provided, it tended to be embedded in the small print. Accuracy of Information: Firms should have systems in place to ensure that the information they provide to consumers is consistent, correct and is kept up to date. A number of price comparison sites provided incorrect or out of date information, or failed to provide the same level of information for each of the policies listed. This created the misleading impression that certain policy features were not provided in the policy. Instances were also identified when the quote given by the comparison site differed from the amount actually charged by the broker or insurer.
Systems and Controls to Check Consistency of Information: Firms should have systems and controls in place to test whether information is being correctly relayed to the broker or insurer. In one instance the information this was not being done correctly.
Commenting on the findings, a spokesperson for the British Insurance Brokers Association said he was pleased the FSA is calling for price comparison sites to give more information to consumers but they should go further: "Like brokers, comparison sites should guarantee their quotes." He also noted that the FSA has stressed the importance of advice when purchasing insurance and suggested that: "Calling a broker is the simplest way for consumers to get this advice, ensuring they get the right cover at the right price."
Clearly the review by the FSA has revealed some worrying shortcomings. Insurance brokers have traditionally carried out comparisons for their clients but they use their expertise and market knowledge to come up with a balanced recommendation that takes into account price, policy cover, insurer service levels and other customer needs. The message appears to be: approach comparison websites with caution and, if in doubt, use a regulated insurance broker instead.
