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 AA-Populus study of over 16,000 drivers suggested that price is the predominant factor in buying decisions. A third (37%) say that they always buy the cheapest policy they can to the exclusion of considering the excess or benefits that the policy offers.
Three quarters (73%) of young drivers (17-24) expect to buy cheap insurance regardless of what cover the policy provides.
In addition, more than half (52%) say 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, often insurers are prohibited from doing so depending on contractual clauses imposed.
Michael Lloyd, the AA’s director of insurance says: “The CMA report proposes further investigation into contractual clauses on pricing. I’m glad that this issue has been recognised.
“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.”
In addition, the research found that half of respondents (50%) were not aware 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 expect.
Adds Lloyd: “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.
“These factors not always made clear and buyers can end up with policies that don’t fully meet their needs. I remain concerned that this hasn’t been fully addressed – more could have been done to support more effective comparisons.
“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’s research is that nearly two-thirds of drivers (65%) 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 and display this important information.
Says Lloyd: “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.
“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.
“While such sites have done much to help keep premiums in check, 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.”