Price comparison websites are to be investigated by the financial watchdog amid fears that insurance consumers find them confusing and mis-leading.
The British Insurance Brokers’ Association, whose members are potential competitors to price comparison sites, sparked the probe after it complained of serious flaws in the way the public use comparison websites to research insurance products.
The Financial Services Authority says it will now investigate whether it needs to take action against online insurance aggregators.
While price comparison sites have mainly welcomed the news as an opportunity to improve standards, most deny that they are confusing to users.
Price comparison sites have thrived since they first appeared during internet boom in the 1990s. Collectively, the major sites attract around 15 million users a month. And consumer confidence in the service these sites offer shows no sign of letting up.
But not all financial firms have embraced them. The most well-known company to cut out middle-man sites is Direct Line, which last year accused price comparison tables of being unrepresentative and actually costing consumers more.
The research commissioned by BIBA found that over half those surveyed didn’t understand the different insurance policies that sites offered, while 84% found the information confusing.
It also discovered that the vast majority of people who use price comparison sites do not trust the information they find online.
Oher research by Defaqto, a provider of financial data, found that less than half of insurance companies match the deals offered by comparison sites. It also identified several weakness in the way sites work, including the fact that many fail to offer users the opportunity to compare the finer details of policy cover.
Eric Galbraith, chief executive of the BIBA, says its research also found that many price comparison sites give quotations based on assumptions which he warns could means consumers are buying unsuitable policies.
Galbraith says: “There are still too many people logging on, and making a decision solely based on the price of a policy, rather than the protections it offers them and potentially buying an inappropriate policy.
“Insurance products are complex, and it is important to understand the cover they provide.”
What price comparison sites say
Insurance comparison sites have largely welcomed the probe but insist they make life easier for consumers by offering a transparent service.
Nick White, of uSwitch.com, says: “Price comparison sites play an important role in helping consumers make complex decisions and help them to navigate a crowded marketplace to identify the best product for their needs whilst saving money.”
And Hayley Parsons, managing director of Gocompare.com, adds: “Customers are switching to comparison sites because they are the most effective way of checking the market, seeing their renewal quote in some kind of context, in a way and at a time that suits them. And they are saving big money.”
Richard Mason, managing director of moneysupermarket.com, accuses the BIBA of sour grapes: “This is the death rattle of a dying sector. Consumers know that if you go to broker you’ll get a quote that covers a few broker based insurers but exclude highly competitive direct insurers. However, if you visit a comparison website you get a quote that covers not only the broker insurers but also most of the direct insurers too.”
What should you do?
There is certainly no shortage of options for people who want to compare financial products online. Researching a few different comparision websites should give you a feel for the market and highlight any inconsistencies.
Price comparison websites make money through advertising or “click-through” commission. When you use price comparison sites beware of prominent sponsored links as these are unlikely to offer the most competitive deals. You should also treat special offers with caution as although these can look attractive they don’t always offer the best long-term value.
Before you start to compare, think about what you are looking for. For example, if you want a credit card then don’t be lead by price alone. You may need to transfer a large balance from another card, in which case a 0% balance transfer deal could be for you. But some of these cards have high rates for new purchases. Taking some time to look at all the products should give you a better idea of what the best deals are.
For more tips on how to get the most out of price comparison sites, read our article The Truth About Best Buy Tables.
To help you shop for financial products Moneywise.co.uk offers best buy tables for savings, credit cards and loans so you can compare the most competitive products on the market.
We also offer a daily-updated guide on the best savings deals in the market.