Ban on price parity agreements will reduce aggregator commission prices – CMA

The ban on price parity agreements between aggregators and insurance companies, known as most favoured nation clauses (MFNs), will encourage the websites to lower commission rates and increase innovation, according to Competition and Markets Authority (CMA) inquiry director Andrew Wright.

“Wide MFNs are [currently] significantly inhibiting competition between price comparison websites,” he said. “By banning wide MFNs we will see commission fees that price comparison websites charge [brokers and insurers] come down in situations where they would expect the price of policies through them to be lower.

“It will also introduce greater innovation and possibly even new entrants where a new entrant operating at a lower premium level has been prohibited in the past.”

Former Sabre chief executive and fellow panellist Keith Morris said he appreciated the ban on wide MFNs, but wished the CMA had gone further and banned the narrow agreements that still restrict brokers and insurers from offering cheaper premiums direct to consumers.

“I do agree that wide MFN clauses are detrimental to the customer, but I think narrow MFN clauses are also detrimental,” he said. “They generally don’t allow insurers who act both in the aggregator and the direct market to offer the best price we can.

“I understand it is difficult for customers if they have to go to a number of different places, but it is still better to have the most competitive price out there. We like to reflect the channel we get the risk through. Direct is a channel and at the moment we can’t reflect that [because of the narrow MFNs].”

Wright responded to the criticism by saying that the benefits that price comparison websites brought to competition in the motor insurance market outweighed the anti-competitive implications of narrow MFNs.

“With narrow MFNs, although they do limit direct competition between the insurer/broker and the price comparison website, it is the competition between different providers that is the key thing driving effective competition in the market [as a whole],” he said. “Price comparison websites facilitate this competition between the different providers.

“It would be good to have the extra competition between the price comparison website and the direct channel, but that is less critical for competition in the way that consumers are currently working.”