Aggregators are misleading clients, FSA review shows

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Review points to emphasis on profit at the expense of regulatory compliance

Aggregators may be misleading customers by designing systems to maximise profit, a hard-hitting FSA review of the sector has found.

The FSA looked at 19 price comparison websites and discovered “failures to comply” with its rules governing insurance contracts.

The review, carried out by the regulator between June and October 2010, states: “Consumers may be being misled about the services they are receiving from price comparison sites.”

It concludes that comparison websites “have designed their systems and controls to maximise revenue and have not paid sufficient regard to regulatory compliance”.

As a result, it says, customers may believe they have received a tailor-made quote from the aggregator when in fact they have an illustrative one based on generic risk criteria.

Specific problems raised in the review include consumers not being given the opportunity to disclose all material facts, triggering refusals by insurers to pay out.

This includes some aggregators pre-completing forms with default answers, which may lead customers to provide misleading information, invalidating subsequent claims.

It also says consumers of price comparison sites may be confused about which firm they should complain to and whether they have the right to appeal to the Financial Ombudsman Service.

The report criticises comparison firms for entering into ‘white labelling’ arrangements, which allow unauthorised firms to arrange insurance contracts against which consumers cannot then claim.

New FSA guidance issued alongside the review advises comparison websites to ensure they are appropriately authorised, or otherwise exempt, and that they are entering into contracts with firms that hold appropriate authorisations.

The FSA has calculated that this will collectively cost aggregator firms about £700,000 up front and £500,000 a year thereafter.

Pinsent Masons partner Alexis Roberts commented: “The latest intervention by the FSA demonstrates that the regulator has an appetite for active regulation of aggregators.

“This might help insurers, who often struggle to achieve the same level of contractual protections for legal and regulatory risks as they see in other distribution arrangements. The FSA’s action might help to redress the balance.”

Welcoming the review, Biba head of compliance and training Steve White said: “It will be interesting to see how much appetite [that aggregators] have to become more like insurance intermediaries.”

A Gocompare spokesman said that the website would be reviewing the FSA’s letter. “Providing a transparent service for the customer has always been our main priority,” he said.