Briefing: Five reasons why insurance price comparison has lost its lustre

Price comparison sites have been on a meteoric rise since taking off 25 years ago, but every good run eventually loses some of its steam. 

Gocompare was sold last year to magazine publisher Future, and now Admiral has banked £508m for the sale of Confused to rival U-Switch. 

Now is a good time to sell. 

Berenberg estimates Admiral’s price comparison segment earns £32m - meaning the sale was equivalent to x20 earnings after tax.

But it is not just about fetching good money. Insurance price comparison may have peaked, and here are five good reasons why: 

1) The FCA’s pricing crackdown

The regulator’s crackdown on differential pricing between old and new premiums leaves a huge question mark hanging over price comparison sites.

The regulator estimates the next decade will see  £11bn lost in revenue due its reforms - with price comparison specifically mentioned as exposed. 

Customers will likely have less incentive to shop around, and less churn is bad news for price comparison. 

2) Mature domestic market 

They used to talk about the big four - Confused, Gocompare, MoneySupermarket and ComparetheMarket. With around 50% market share, it’s now ComparetheMarket versus the rest. 

ComparetheMarket has had an outstanding marketing and advertising campaign with its meerkats, while also investing heavily to remain top of search rankings. 

That’s difficult for rivals to chip away at on insurance. The one ray of light for rivals is the competition watchdog’s fine on ComparetheMarket.

According to the watchdog, rivals potentially lost out when ComparetheMarket enforced strict rules on insurers and brokers prohibiting them from pricing their products cheaper on other aggregator platforms. 

Perhaps this regulatory intervention will allow rivals to compete more fiercely and take business away from ComparetheMarket. 

3) The Google squeeze

While price comparison earn well from insurers and brokers, they in turn face a constant pressure from Google and other search firms. 

Price comparisons pay handsomely to search firms so they can feature at top of search rankings. 

This is a cost that is very difficult to adjust or alter.

The main aggregators’ costs on advertising and paid search come to between £100m and £120m annually. In motor, just over half the costs is on paid search and in home, 95% is on paid search. 

Google especially has a vice-like grip on the sector. If the FCA crackdown does impact revenues, reducing costs to mitigate the impact is not easy. 

Facing this costs pressure, price comparisons have earned very good money from insurers and brokers. They could seek to soften the blow by finding ways to earn more from insurers and brokers.

But now insurers and brokers are looking elsewhere. 

4) Brokers & insurers taking back control 

 With the FCA pricing reforms likely to lead to more loyalty, it means brokers/insurers can enjoy a longer recurring income per customer. 

That in turn could increase investment and campaigns to attract customers direct. 

Saga, with its three-year fixed pricing deal, has specifically stated it as a strategy to attract customers direct, meaning it will avoid the costs of price comparison. 

The broker has already enjoyed some success. It now has over half a million three-year fixed price deals. Retention is 10% higher than on standard products.

It’s not a question of ‘if’, but ‘when’ other players devise new schemes to take back control. 

5) International comparison stuck on the runway 

 When Henry Engelhardt was interviewed by Insurance Times in 2014, he was confident buying direct would take off internationally. 

“The 23-year-olds in Rome, Austin, and Toulouse are using the internet for virtually everything they’re doing and they will use the internet to buy their car insurance.

”They are all agent-delivered markets. We are sitting on what I believe to be an obvious distribution switch,” he told Insurance Times. 

However, while Admrial’s UK business continues to perform, international has been underwhelming. 

Half-year results show the European arm making just £0.7m profit against £20m turnover. Profit margins since 2018 have fluctuated between just 3.5% and 10%. 

Meanwhile, US and Mexican aggregators are still making losses. 

The simple reality is that customers across the world are not ready, or capable due to regulation, to embrace price comparison in the same way as the bargain-hunting loving public of Britain. 

Price comparison was not a strategic priority for Admiral and it sold the business.