Price comparison websites (PCWs) are a valuable tool for shopping around, but consumers may not be getting the best deal if they focus solely on price instead of the level of insurance cover.
The Financial Conduct Authority (FCA) has begun a thematic review looking into insurance PCWs. The review, which will include 14 PCWs (representing 90% of the market) and a number of insurance providers, will gain a clearer understanding of whether the way information is presented gets consumers the fairest deal.
Clive Adamson, the FCA’s director of supervision, said:
"We’ve all used a price comparison website so we know how simple they make buying motor, travel or home insurance. We don’t want to lose that convenience, but we do need to ask the question, 'does cheapest equal best?'
"We want to get to a place where consumers that use these sites buy with the confidence knowing that they have all the relevant facts."
PCW's perform a valuable service for millions of people, bringing convenience and simplicity to buying financial products online. In fact almost half of all internet users have used PCWs to research motor insurance, with four out of five going on to buy insurance through this channel. A quarter of all internet users have bought home insurance through a PCW.1
However, in line with its objective to protect consumers, the FCA wants to ensure that their rapid growth in popularity has not come at the expense of transparency and fairness.
A key concern is the expectation gap – where people believe they are getting a good deal because they are saving money initially, only to find they are not covered as comprehensively as they thought when they make a claim.
As part of its review the FCA will:
- Carry out an in depth consumer survey to understand exactly what people want from PCWs when they are shopping for insurance, how they use them, and how they might be improved;
- Look at how key information is presented, and whether that might lead to consumers not fully understanding the service they are getting;
- Understand if there is too much of a focus on headline price, and whether consumers may be misled into purchasing products or add-ons which do not meet their needs;
- Question firms about revenue generation to look at whether the customer or profit is really at the heart of a business model;
- Check for conflicts of interest, such as where a recommended insurer also happens to own the PCW;
- Look at the possible inappropriate use of consumers’ data, or people being directed towards unauthorised insurers; and
- Check firms are doing the basics, such as complying with all relevant FCA regulatory responsibilities and clearly explaining their role and complaints regime.
The thematic review will focus on motor, travel and home insurance because these are the most popular insurance products compared on, and bought via, PCWs. In addition to speaking with PCWs and insurers, the FCA will also engage with trade bodies, other regulators, and consumer groups.
The FCA will publish its results, and what action it expects PCWs and insurers to take, next year.
In its 2013 Conduct Risk Outlook and 2013/2014 Business Plan the FCA set out that it would be reviewing PCWs and highlighted two specific risks:
- That distribution channels do not go far enough to promote transparency for consumers on financial products and services; and
- An over-reliance on, and inadequate oversight of, payment and product technologies.
Notes for editors
- The FCA confirmed it would review PCWs in its 2013 Risk Outlook and its 2013/2014 Business Plan.
- In 2011, the Financial Services Authority (predecessor to the FCA) issued guidance on regulatory permissions that PCWs must hold, and on handbook requirements.
- The Competition Commission is to look into PCWs as part of its review of Private Motor Insurance.
- On the 1 April 2013 the FCA became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).
- The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers.
- Find out more information about the FCA.