Websites vs Brokers: There’s No Comparison
In the latter half of 2014, the FCA published their findings following an investigation into Price Comparison Websites (PCWs) and it makes interesting reading that every broker should familiarise themselves with. The study included 14 PCW’s which account for over 90% of all GI products sold through this medium, so you can be sure all of the wellknown firms were in there.
You should all be aware of the findings because I believe it is good news for intermediaries and reinforces what I have said for some time – your clients need to be aware of the shortcomings of PCW’s. The fact that this investigation has been carried out by the FCA means that their sharp practices are now firmly on the regulator’s radar as well.
The key conclusions from the FCA study
The FCA review focuses heavily on the lack of information often given to customers. Instead of providing information to customers, some PCWs would provide prompts such as “check with insurer” or “check the policy”.
Areas where some PCWs are not providing sufficient, clear and consistent information include:
- The main features of the product including level of cover and excesses were not clear.
- The main exclusions and limitations of the policy were not clear.
- There was no clarity around additional fees for cancelation or mid-term adjustments.
- Inconsistent provision of a clear demands and needs statements.
- The FCA found that PCWs often obscured the way that customers could opt out of the use of their personal data for marketing purposes.
At Source we provide all of this information and more for you to pass on to your clients – much of it automatically produced or pre-populated, and we never use client data.
The FCA also felt that PCWs placed too much emphasis on the price. This emphasis on price exacerbates the practice of providers stripping out features from the core product in order to bring the price down to appear at the top of the quote rankings. This is often done with no clear breakdown of the cover or features included (or excluded) being made easily available to the customer. The FCA believes that this could lead to customers buying the cheapest product, which may not be suitable for their needs.
Some PCWs used ‘green ticks’ and ‘red crosses’ to indicate whether a particular feature or cover was included or not included. The FCA found evidence of ‘green ticks’ in the quote results indicating that an add-on feature was included as part of the core policy. However, when the ‘more info’ button was clicked, there was an additional cost attached or, in some cases, the cover was not included. This can mislead customers into making inappropriate decisions.
The study also found that the voluntary excess chosen by the customer was often completely different in the quote results. In some cases, the excess quoted was misleading as the way it was presented implied the excess was applicable to all types of claim. On household policies for example, the excess for escape of water was frequently higher than the disclosed excess and it was not made clear to the customer that they would have to pay a higher excess in the event of certain types of claim.
The report also found that some customers did not understand the terminology used because of the way the policy excess was presented in the results. For example, some customers mistakenly assumed that the voluntary excess was the amount they would receive in the event of a claim, and only a small amount of customers realised that the voluntary excess would be added to the compulsory excess in the event of a claim. These are vital points that a broker can easily explain when talking to a customer.
Confusion over the role and bias of PCWs
The FCA also felt that the PCWs often did not make clear what role they were performing when providing quotes for insurance products or the nature of their service. The ‘less sophisticated’ insurance buyers generally misunderstood the role played by PCWs. Some mistakenly believed that the PCWs had delivered tailored quotes unique to their individual circumstances, due to the personal questions asked. As a result of this, there is an increased risk that customers may end up with a policy that is unsuitable for their needs due to the expectation gap between their perception and the actual service provided by the PCW.
It should also be remembered that many PCW’s will carry out an automatic credit search on all quotes which could lead to the credit scoring for some mortgage clients being severely impeded.
A number of PCWs are part of a wider group that includes brokers and/or insurers, and some of those brokers and/or insurers have controlling interests in the PCWs. The FCA found that not all of the PCWs had disclosed this fact on their website. This was a concern for customers, as they were worried that it might potentially bias results and undermine the assumed and expected impartiality of the PCWs and the search results they provide.
PCWs generally provide information on how they are remunerated, but it is not always easy to find. Some PCWs made statements like “it costs you nothing to use our service” – which is misleading as there is an indirect cost to the customer, as providers may include the fee they pay the PCW in determining the ultimate price of their product. We often make the mistake of assuming that PCW’s are always cheaper than the products available from providers like Source, however, this is not the case, on a like for like basis broker products can compete with the PCW’s as the distribution cost is still there with the PCW’s it’s just harder to find.
You could be forgiven for thinking that the sheer pervasiveness of the PCW’s in recent years has made it impossible for you to compete, but I think the tide is turning and consumers are becoming more aware of how they are being manipulated in many circumstances. There is no question brokers play an important role in the purchase of GI, and this role just became more important.
UPDATE: On 28th February 2015 The Independent published an article titled “Price comparison sites accused of ‘duping’ energy customers”. This article, the title of which is self-explanatory, was followed by a related article on the BBC website (Click Here to view). It seems like the perceived trustworthiness of price comparison sites is coming under more scrutiny than ever.
Phil Lewis, Head of HR and Compliance – uk.linkedin.com/in/phillewisuk