13 June 2014

Time for comparison sites to be brought down a peg

James Daley

By James Daley LinkedIn

With Snoop Dogg now fronting their adverts, have comparison sites got too big for their boots? The competition regulator thinks so

Price comparison websites have been one of the great innovations of the past two decades. By allowing you to compare dozens of policies at the click of a button, they have forced insurers to compete on price, and they’ve helped smaller brands get a foothold in a competitive market.

Comparison sites are now big business. Moneysupermarket is valued at more than £1bn – and over the past few years, its adverts have gone from being fronted by Omid Djalili to Snoop Dogg. I imagine the fees that these two command have a different number of digits in them.

But as the influence of comparison sites has increased, they have also become ever more aggressive with the companies whose products they sell – using hardball tactics to protect their profit margins.

Comparison sites holding insurers to ransom

The Competition & Markets Authority today published the conclusions of its two-year study into the motor insurance market – exposing some of the aggressive tactics used by comparison sites in its report.

In particular, the CMA draws attention to the fact that most comparison sites now insist that insurers on their sites don’t offer their products any cheaper elsewhere – a so-called “Most-favoured nation” clause. This might seem like good business – but the effect has been that insurers are unable to negotiate better deals with other comparison sites, and pass on those benefits to the customer.

Worryingly, the CMA report says it found examples of comparison sites trying to drive down prices for customers – but ultimately failing due to the hardball tactics of rival sites.

Comparison sites get paid a commission from the insurer – of around £50 – for every motor policy they sell. In one case, the CMA said that a comparison site had agreed to accept lower commissions on the condition that the benefits were passed onto customers in terms of cheaper prices.

But by signing up to this agreement, insurers put themselves in breach of their most-favoured nation clauses with other comparison sites. The rival sites reacted by holding the insurers to ransom – and threatening to remove them from their site unless they made sure their price on other sites was no cheaper.

Impressively, the CMA took a no-nonsense approach to tackling this issue – and has announced that it intends to ban most-favoured nation clauses of this kind. Comparison sites will still be able to insist that insurers don’t offer a cheaper price on their own website – but they won’t be able to stop insurers from offering cheaper prices on rival comparison sites.

More work for customers

The end result for customers will be that it’s more important than ever to visit multiple comparison sites when you’re shopping around for your insurance. Although it already makes sense to use more than one site – as some insurers don’t appear on certain comparison sites – the new rules will mean that you will now get different prices for the same insurer depending on which site you use.

It will inevitably be good news for the likes of Admiral – who own Confused.com – and esure, who own 50% of Gocompare. These comparison sites will now be able to offer cheaper prices for their own insurance brands on their own comparison sites – without being threatened with removal from their rivals.

The bad news for consumers is that if you’re hell bent on getting the very best price, you’ll need to work harder than before. What we need now is a comparison site of comparison sites.