Is the jig up for some price comparison sites?

After years of lobbying by both industry and consumer bodies, the FSA has finally moved with its regulatory crackdown on the comparison websites.

Biba head of compliance and training Steve White says that the association has been lobbying the FSA on its concerns about the aggregators for the last four years. The issue has been a regular feature on Biba’s annual list of lobbying priorities.

So last week’s announcement was a welcome one for the industry. But will the new guidance level what many brokers see as an unfair playing field with the aggregators?

Misleading consumers, cutting corners

In unusually hard-hitting language for a regulator, the review finds “failures to comply” with rules on insurance contracts by the aggregators.

Most damningly, it says: “Consumers may be being misled about the services they are receiving from price comparison sites.”

And it backs insurance industry criticisms that comparison websites cut corners in order to negate the hassle for time-poor customers.

The review says: “They [comparison websites] have designed their systems and controls to maximise revenue and have not paid sufficient regard to regulatory compliance.”

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

Answers by default

Another problem is consumers not being given the opportunity to disclose all material facts, triggering refusals by insurers to pay out all or some of the claim.

This non-disclosure can result from another of the issues highlighted by the report – the pre-population by aggregators of default answers, which may lead to customers to provide misleading information, potentially invalidating subsequent claims.

And the report criticises price comparison firms for entering into so called ‘white labelling’ arrangements, enabling unauthorised firms to arrange insurance contracts, which consumers cannot then claim against.

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 go to the Financial Ombudsman.

So you wanna be an insurance intermediary?

The review supports new guidance, which has been circulated to all comparison websites (see box for details).

White says: “It will be interesting to see how much appetite they [the aggregators] will have to become more like insurance intermediaries. If they are acting as an intermediary, the law of agency will apply to them.”

The FSA’s cost benefit analysis of the changes calculates that introducing its new guidance will collectively cost aggregator firms approximately £700,000 upfront and £500,000 per annum thereafter to maintain.

For firms employing 100 plus staff, the FSA estimates one-off costs of £90,000 and ongoing costs of £70,000 per annum thereafter. These sums should be chickenfeed in the context of such companies’ marketing expenditure, equating to a handful of prime-time advertising slots.

Hitting small sites hardest

But, the new guidance may have more impact further down the comparison site food chain.

The smallest firms, employing five staff and under, face one-off costs of £2,700 and ongoing costs of £3,000 per annum, the FSA calculates.

The FSA predicts that the new guidance some comparison sites may fold, as a result of the changes.

The analysis says: “There is a chance that when firms fully realise the requirements that exist for them, then some may either exit the market completely or sell their business.”

For brokers, this week’s guidance may represent the first turn in the tide of the remorseless march of the aggregators.