Many sites fail regulatory standards by not providing enough details for consumers to make informed choices, says FCA. Price comparison websites are breaking regulatory rules by prioritising price over cover in many cases, said the City watchdog.
The Financial Conduct Authority looked at 14 price comparison websites, which between them account for 90% of the market, selling private motor, home and travel insurance and concluded that many were failing regulatory standards. The websites did not always provide clear information on basics such as the terms of the policy and the cover it provided, as well as the excess that is payable by the policyholder in the event of a claim, said the watchdog.
The result could be that policyholders are then saddled with insufficient cover that they only discover when they come to make a claim. “They [price comparison websites] provide an important service for millions of consumers, bringing convenience and simplicity to buying financial products online,” said Clive Adamson, FCA director of supervision. “However, our review found that they were not meeting our requirements in delivering fair and consistent outcomes for consumers. We also found, through our consumer research, that consumers had a number of misconceptions about the services they provided.”
Price comparison websites have become an increasingly popular way to buy insurance and other financial products, with one third of the 26m motor policies written in 2013 sold through the sites, according to the FCA. Consumers often view them as a quick and easy way to cut through the confusion of comparing the terms of various insurance policies and save money. Single-trip travel insurance, for example, can often cost less than £10 when bought through a comparison website.
However, policyholders risk having to foot the bill in the event of a claim if the cover does not meet their needs, suggested the report. “It is important for consumers to understand that not all products are the same and the cheapest product may not always be the best for their needs,” said Adamson.
The report also concluded that some websites were failing to disclose fees that policyholders would have to pay to cancel the policy or make adjustments part way through it – for example, for changing address before the expiry of a motor policy. It also found that not all comparison websites that were part of a larger group of an insurer or broker disclosed this potential conflict of interest, which is against FCA rules.
The watchdog said it had written to all the firms it had identified problems with and would be conducting a follow-up to check they had complied with its regulations.
However, such action by the watchdog does not go far enough, said James Daley, managing director of consumer group Fairer Finance. He added: “An increasing number of people are sleep-walking into insurance products which aren’t suitable for them – and only find out when it’s too late and their claim is rejected. This is not a problem that the comparison sites can be left to solve on their own.”
The Financial Ombudsman Service, which deals with complaints about financial products but not comparison websites, said that about a third of the gripes it deals with on insurance relate to sales and advice. A spokesman said it was difficult to determine how much of a part comparison websites play in problems about insurance because consumers tend to complain about the company they have the policy with.
“It is ultimately down to the insurer to make sure that the required information about the policy is available to consumers, whether that person comes to them through the front door or the back door [via comparison websites for example],” he said.