James Daley

By James Daley

Life insurance is pretty simple product. At its most basic, you hand over a few pounds every month in return for a promise that your family will be paid a much larger sum if you die in the prime of your life.

There are few limitations or exclusions. In fact, most policies have just one rule - you won't get paid if you commit suicide within the first year.

If you don't have any serious medical conditions, buying a policy is now pretty straightforward. Comparison sites will give you a list of prices from the largest providers, and a few clicks later your policy will be set up and ready to roll.

So you might be shocked to know that in return for providing this rather binary service, most comparison sites will take commissions that run to the hundreds, and maybe even thousands, of pounds.

Abusing customers' loyalty

It's a classic example of something the comparison sites have been doing for years. While earning customers' trust by offering fairly comprehensive car and home insurance channels - they take advantage of the minority who go onto use them in more niche product areas.

For selling an average car insurance policy, a comparison site will take a commission of around £50. But for a £50 a month life insurance policy, the commission can easily run to four figures. And the worst part of it is that the customer is almost certain to be oblivious to the fact they could have got the same policy significantly cheaper elsewhere.

Discount brokers such as Cavendish Online rebate all the commission back to the customer, and simply charge a flat fee of £25 for setting up a policy. That means a £50 a month policy will cost you something closer to £40 a month on Cavendish. And you'll be making that £10 saving every month for 20 or 25 years.

You can listen to me talking about the issue on this week's edition of Radio 4's Moneybox.

Commissions were designed for advisers

Comparison sites get away with this because insurers offer commission which doesn't discriminate as to where the business comes from. So an independent financial adviser - who asks you questions about the size of your mortgage, how many dependents you have, and extracts chapter and verse about your medical history - will be offered similar commission levels for selling a life insurance policy. He can probably justify his four figure commission, as he's done some work to fit you up with the best policy.

But comparison sites are doing nothing other than providing access to a data feed.

Worse still, most comparison sites are not even giving you a final price. When you see the list of results, the prices will only be indicative. Once you've selected your policy, you'll usually be pushed through a lengthy set of medical questions before you're given a final price - and for a third of people, this will be higher than the price they saw at the start.

By that point, it may be that life insurer B or C would have offered them a better deal. But they'll never know unless they go back to the start and complete the journey all over again.

So comparison sites are not even doing a decent job at offering a comparison. Yet they have no compunction at taking hundreds of pounds in commission if they complete a sale.

Comparing like with like

Thankfully, a new piece of technology may soon allow people to at least get accurate like for like quotes. A platform called Underwite Me allows you to answer all the medical questions up front, and then gives you a list of accurate quotes at the end.

Cavendish have become the first consumer facing business to embed this platform into their search engine - which means it is now possible to get accurate like for like quotes on a comparison site. The only problem is that most of the providers still aren't on the Underwrite Me system. Brands like Canada Life, LV and Royal London have been quick to realise that this is the future. But the older, bigger players in the market have squabbled about how to align their question sets with Underwrite Me - and still don't appear. In some cases, it would seem that they are resisting being on the Underwrite Me platform, as it serves their commercial interests better to do things the old way.

We are big fans of Cavendish - and I should say at this point that they are currently the only comparison site who we allow to use our ratings. We have had conversations with others but refuse to support businesses that exploit a commission structure that is designed for a fully advised customer journey.

The larger comparison sites do a great job of brand building and persuading customers that they are pseudo-consumer champions. But in the long run, they will be judged on their actions, not on their gimmicky advertising campaigns.

As ever, I have little faith in the industry self-regulating itself. I'd like to see the FCA taking another look at the issue of commission in protection. We've now got rid of it altogether in the world of investment - and I'd like to see it gone from protection as well. Commissions drive bad behaviour. They should be driven out.