One of the most important questions being asked as part of the thematic review by the Financial Conduct Authority (FCA) into price comparison websites is: does lowest cost always mean best?
There can be no doubt that the advent of these websites has brought about the commoditisation of the personal lines insurance market. Price has become king. While consumers undoubtedly want competitively priced products that meet their needs and respond well in the event of a loss, I suspect that for many the bottom line price has become the driving force behind their decision to buy.
Of course price is always going to be important, but it is not the only measure of a good deal which highlights another concern expressed by the FCA in launching its review. Consumers believe they’re getting a good deal from these websites because they save money initially, but often find at the point of claim that they’re not covered as comprehensively as they thought so their policy then represents poor value.
Insurance policies are legal contracts and despite all efforts to write them in plain English, it is not always easy for consumers to identify exactly what is and isn’t covered. This works in the favour of the aggregators who grab the consumer’s attention on price by employing the spurious practice of using default answers to drive down headline rates.
For example, on household insurance, defaulting a standard answer to ‘occupied during the day’ will reduce the premium, but in most cases will not be true and left unchecked could invalidate any claim. Caveat emptor – careful checking is required and as these platforms take no responsibility for the sale, the onus is squarely on the shoulders of the consumer. Likewise, many sites will default the excess to £250 when in reality many insurers will set the standard excess at £50 -£100. Obviously a higher excess drives down premiums, but with a sting in the tail when it comes to claiming.
And when it comes to household insurance, I believe this is an area where intermediaries can demonstrate their true value to consumers.
Make them aware of the tricks that the aggregators employ such as default answers and stripping out cover to deliver an attention grabbing rate – and talk them through the risks of not checking responses and demonstrate the additional costs of having to buy optional extras to achieve the level of cover that many policies include as standard. If you do the job properly, your client will take your recommendation.
These websites have seduced consumers with their ubiquitous advertising and you could be forgiven for thinking that they are now the route of choice for anyone looking for household insurance. However the statistics clearly show that’s not the case. Intermediaries have increased their share of this market to 41% over the last five years. So do your clients a favour. Educate them as to the dark arts price comparison websites use and demonstrate your expertise by presenting them with insurance policies that really do represent value for money. You never know, but I reckon that many will appreciate the advice enough to buy from you instead.
Kevin Paterson is managing director of Source Insurance