For centuries a fairly small number of underwriters would guarantee insurance policies, which were then sold by brokers. Recently, with the coming of the Internet, price comparison sites took a huge slice of the British market for routine policies such as for cars and houses, by allegedly cutting out the middleman. Is this what really happened though, and has it led to lower premiums - or higher ones?
Yes and no. Initially, to be listed by the major sites there was a condition (since blocked by the Competition Commission) that the insurance provider could not offer cheaper prices elsewhere, including directly from their own website. So, buying through the price comparison site made sense because a cheaper, identical policy from the same provider couldn't be found elsewhere. Comparing prices led to increased competition between these insurers, which is always good for the consumer!
However the overwhelming majority of 'insurers' on these sites are actually brokers who, as before, re-package policies provided by underwriters. They still took a commission for handling the policy. However, on top of this was the hefty fee charged by the price comparison site! Yes, insurers were obliged to be more competitive but the insurance market is not all that profitable to start with, so more money had to be found from somewhere, not least of all to pay for the comparison site's charges. The answer was profitable addons like courtesy car cover, extra payments for services such as changes of address, large compulsory excesses, and, not least of all, increased prices for renewals. So, overall, the claims that price comparison sites have led to lower premiums is open to argument.
There certainly are advantages in using one if you are buying routine products such as car, van, energy or home cover. Many insurance providers like to specialise in certain segments of the market; so the one that is the cheapest for, say, a young sports car driver could be the most expensive for a middle aged motorist with a family car and a long no claims record.
In addition, they usually calculate their premiums in different ways, giving different weight to factors such as the applicant's age, postcode, marital status, etcetera.
As a result, using a price comparison site can let an applicant quickly find out which company, from the panel of insurers that the site deals with, can provide the cheapest policy.
1) These are businesses, not charitable institutions. The top four price comparison sites spent, between them, hundreds of millions of pounds every year on advertising through ads on TV, radio, and particularly online. Their search results have appeared at or near the top of search engine results, not because they provide the best or cheapest service, but because of their massive advertising spend. Also, they have been making huge profits.
The money for all this comes out of what they charge the insurance providers that they send business to, who in turn have to recoup this by charging higher premiums.
2) There may well be other companies that could offer you a cheaper policy or one with better benefits, but which will not pay for inclusion on the panel. So you could miss out better deals.
3) Since you will not be dealing with a knowledgeable human being who could offer you advice, you could end up buying an unsuitable policy, merely because it was the cheapest available.
4) Since many people buy on price, many insurers have cut their prices for new customes but increased them for renewals. There is a tendency for motorists to take the easy option and allow renewals to go through automatically, so any savings in the first, lower premium were met with additional charges every time the policy was renewed. This has led to a lot of motorists searching for a new deal every year, causing this situation to get even worse; good for the major price comparison sites, but bad for the insurers and ultimately their policy holders.
This practice of charging more to existing customers than new ones has been made illegal in Britain from January 2022. It will be interesting to see what effect this has on the income of these huge sites in the future.
5) They are blunt instruments designed for the 'average' applicant; but we are all different in some way. They make certain assumptions and it is not unusual for applicants to find prices or benefits changed completely when they are put through to the insurance companies to complete their purchases, or after those companies have completed their checks.
6) Most insurance products, particularly commercial ones, are too specialised for a price comparison site since they need to be dealt with individually, by reliable and highly experienced experts. This even includes car insurance policies bought by many motorists; an automated system can struggle with those with, for instance, an accident or conviction record, or requiring cover for any use of a car outside the usual social and domestic driving.
7) Customers are encouaged to buy policies based on price, rather than benefits. This can lead to people finding that they are under-insured.
1) Insurance brokers are highly regulated to ensure that they offer their clients good, reliable advice and act in their best interests.
2) They are usually specialists in their own particular fields, and so can offer excellent advice. This is particularly important if a customer's needs are slightly different from the norm; for instance, those requiring commercial insurance.
3) Many will help with claims or other problems that policy holders may come across.
4) Just like price comparison sites, they mainly get their income from commissions they receive from the insurers, so in most cases they will not charge you any extra for their services.
1) They cannot act as quickly as an automated system can; it may be a while before you get a response, particularly during evenings or weekends.
2) They may need to talk to you rather than just send you quotes, and this may be inconvenient.
Both methods have advantages and disadvantages. If your needs are simple; for example if you are an 'average' person needing home or car insurance, then a price comparison site may be very useful for you. If your needs are more complex a specialist broker might be a better (or the only) option.
This why we partner with Seopa Limited. They are not owned by an insurer themselves so their price comparison system is completely independent, but they also work with a large panel of brokers, most of whom are specialists in particular fields. We believe that this can offer our visitors the best of both worlds.