Price comparison websites - A thematic review and the Huntswood view

Posted: 15th September 2014

In July, the Financial Conduct Authority (FCA) published the findings of its review into General Insurance (GI) price comparison websites (PCW).

The regulator found that some price comparison websites are falling below regulatory standards and failing to provide fair and consistent outcomes for customers.

With around 9 million consumers buying their car insurance through PCWs there is the potential for widespread customer detriment. Whilst the convenience and simplicity PCWs bring to the buying process was welcomed by the regulator, there is a real risk that poor customer outcomes may result, be that the purchase of insufficient cover, paying a higher price for cover than is necessary or ultimately buying a product for which the customer is unable to claim.

Virtual failings

The FCA’s headline finding is that PCWs do not always ensure that consumers are given enough, or the right, information to make informed decisions and are encouraged to focus on price rather than product features and exclusions. While this information was available, its portrayal and accessibility varied widely between providers.

The other main findings of the FCA’s review were:

• PCWs did not make their role clear with some consumers mistakenly believing the PCW had provided them with quotes on the best policy for them or had assessed the suitability of the policy for them.
• Where some PCWs were part of a larger group of an insurer or broker they did not disclose this potential conflict of interest.
• PCWs had generally failed to fully implement the FCA’s 2011 final guidance on PCWs (FG11/17).
• Add-on products were not presented to the same level of detail as the primary product and therefore restricted consumers ability to compare product features, prices and exclusions
• Some PCW’s also failed to meet FCA expectations in their Financial Promotions, use of customer data, and approach to complaints

What now for PCWs?

The FCA “expects PCWs to take on board the findings of the review. It is…important for consumers to understand that not all products are the same and the cheapest product may not always be the best for their needs.”

The regulator has given individual feedback to the 14 PCWs involved in the review, asking them to commit to take action in 5 key areas:-

1. Provide consumers with appropriate information to make an informed decision. This information is expected to go beyond price to include level of cover, key features, benefits, exclusions, limitations and other relevant information the consumer may require.
2. Provide a consistent level of information for different providers to allow consumers to easily compare products and make an informed choice.
3. Make clear their role in the distribution of the product and the nature of the service provided.
4. Ensure full compliance with other relevant regulatory and legal obligations, including those around complaints, data management, financial promotions, due diligence and conflicts of interest.
5. Ensure the interests of their customers are genuinely at the heart of how they run their businesses.

The FCA also stressed that PCW’s must pay due regard to other thematic reviews such as the forthcoming Complaints Review and also ensure “that they are handling complaints from their customers appropriately”.

Where PCWs cannot demonstrate they are now delivering fair and consistent outcomes for the customer, the regulator has said they will “use the full range of regulatory tools available” to them.

Looking beyond the thematic

The FCA has been clear that “achieving fair outcomes for consumers is reliant on all links in the distribution chain”. It expects the product providers themselves (the underwriters and intermediaries), to consider the report particularly in the context of ICOBS 6.1.1R, to consider their product governance responsibilities, and to work with PCWs to address any issues identified.

PCWs operating outside of GI, and in Europe, particularly need to think through the information needs of their customers, ensuring product benefits, exclusions, add ons and pricing are transparent. The FCA also reminds all firms to revisit both the report issued by the European Insurance and Occupational Pensions Authority (EIOPA) in January 2014 on good guidance practices on comparison websites, and the FCA guidance consultation on Annuity comparison websites in February this year.

Again the FCA is reinforcing its determination to see fair customer outcomes at the heart of the firms’ business models, be that at the very beginning of the product lifecycle, or when claims occur or a complaint is made. All Thematics and enforcement action carry the same message and as Tracy McDermott, Director of Enforcement and Financial Crime at the FCA recently commented: “We care about consumer outcomes. The world of financial services can often appear baffling to the man on the street and as a mine-field to be navigated. Too often firms have made things worse by not treating customers fairly”.