Tag Archives: comparison sites

Comparison sites code of practice

The British Insurance Brokers’ Association (BIBA) issued a press release recently (full version here) commenting on the proposed creation of a code of practice for comparison sites. Their stance is that buyers of insurance on comparison sites are not being treated fairly.  Treating Customers Fairly (TCF) is a concept created by the Financial Services Authority (FSA) which essentially removes the ability of firms to say ‘well I followed the letter of the law’ – the concept of TCF forces them to consider the spirit of the law as well. It’s about principles rather than rules.

I’ve written before about my distrust of comparison sites (to various different degrees depending on the site) and despite the obvious bias BIBA is bound to have I can’t help but agree with them.

In January 2008, BIBA published market research which showed that:

* Over half of insurance buyers interviewed believe that customers do not fully understand the differences between each insurance policy offered via comparison websites
* 94% of insurance comparison website users do not believe that the details of what the policy covers and does not cover are explained fully
* 84% of insurance buyers said that the details of insurance policies offered via price comparison websites can be confusing
* 93% of consumers believe that insurance comparison websites should be regulated in the same way as insurance intermediaries
* 63% of buyers are nervous about purchasing from comparison websites
* 59% of insurance comparison website users believe that it was not very obvious or not obvious at all who the policy was underwritten by.

Essentially, it could be argued that comparison sites are selling complex financial products and customers need more protection from poor practices that could result in the sale of inappropriate products.

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Are comparison sites independent?

Does anybody still believe that comparison sites are independent? Years ago I had dealings with a very popular comparison site and was also involved in establishing a new one. I’m thinking back to the year 2000 here and I’ve had dealings with many of them since then so can see how the dynamics have changed.

Initially, there were far fewer internet users and far fewer comparison sites. There was a feeling that we were still on the cusp of something, the dot com bubble had burst and the more serious commentators were talking about ‘clicks n bricks’ rather than pure internet companies. The comparison sites began to grow rapidly.

Now, if you were selling personal loans at this time there were several factors to consider:

1. If I sell through an intermediary (comparison site) then I have to pay commission and I lose control over the customer acquisition process. Do I really want to help them to become more powerful?

2. If we allow the comparison sites to sell our products then we only make them stronger. After all, if they have nothing to sell nobody will use them. Except of course my competitors might advertise on their site and so I’d lose out.

3. The internet is growing all the time and it seems likely that it is going to become very important but none of us have the experience, knowledge or skills to make it work. The comparison sites seem to know how the internet works and perhaps if we use them then we will learn something and of course not be left behind.

And of course there were others who just didn’t think it was that important. But they were wrong because the internet’s powerful ability to provide access to information was set to revolutionise the way we shop online.

So the comparison sites would list your products on their sites and in return you would pay them a commission each time somebody took out a loan. It didn’t cost you anything to be listed and the site benefited from having a broad range of providers.

These days there are many comparison sites and and visitors are less trusting. This competition has reduced the income of comparison sites and forced them to look again at their business models. It takes a pretty substantial team of people to maintain up to date websites and continually refresh the content – they are basically publishers. Just like other publishers they have fixed costs that must be recouped and they have a limited amount of inventory with which to do so. They have to focus on those ad revenue opportunities that will provide them with the maximum income – and now they want paid upfront too.  This introduces a bias in which products reach your screens at all.

They will in fact, just like newspapers, have editorial departments separate from advertising departments but all publications have an editorial bias – the Torygraph probably doesn’t appeal to the loyal Guardianistas! And the editorial standards of the Sunday Sport probably vary from those of the Sunday Times. Not all comparison sites are the same quality.

The evolution of comparison sites into online publications like any other does not in itself give us reason to doubt the quality of the comparisons they provide but not all product providers will be listed. Direct Line make a point of telling you that they ‘cut out the middle man’. Comparison sites list fairly basic details and, for simple products like personal loans, this is a useful service that makes it convenient for us to get a snapshot of the market. In themselves they are not sufficient to guarantee that you are getting the best rates on the market but they offer a reasonable estimate.

What about more complex products though? What about rating funds? We’re moving beyond your usual comparison sites here because rating a fund is far more involved than simply comparing rates. What’s interesting here is that most fund rating companies will charge a fee to the company that runs the fund in order to provide a rating. This fee is in the order of £8-10,000 per fund rated per annum. In return the fund manager can advertise the fact that they have a 3 star rating (or whatever rating system applies). There is an exception to this practice – Old Broad Street Research (OBSR) rate the funds they feel ought to be rated and then, if the company that runs the funds wishes to purchase the rights to use that rating they may do so. Last time I looked OBSR rated around 280 funds from 67 providers – about 49 of these bought the rights to use the rating. OBSR makes money in other ways and its business model allows it to remain independent.

In summary, comparison sites are useful time savers for simple products. When it comes to more complex products you are still best advised to do more independent research.


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