Aggregators have come under close scrutiny due to what some brokers believe is a lack of regulation disproportionate to the power the sector now wields. But, with Treating Customers Fairly guidelines already central to price comparison sites, is this argument really justified, asks Rachel Gordon?
One of the UK's broker trade bodies appears to have scored a stupendous PR victory with its campaign calling on the Financial Services Authority to review price comparison websites.
Research by the British Insurance Brokers' Association found more than 50% of insurance buyers did not understand the differences between policies on aggregators' sites and almost all wanted the same standards of regulation applied to these sites as to brokers.
The media pounced on its findings when the press release went out last month and, only a day later, it was widely reported in the press that the FSA plans to look more closely into the sector.
Although the main sites are already regulated, the statutory rules were drawn up before they came on the scene - with Biba believing new ones are essential.
An FSA spokesman admitted at the time: "We had considered this issue before but decided then no action was needed. However, in light of the new Biba research, we will issue a further investigation to consider whether we should intervene by rule changes or other action."
Aggregators are taking the heat. Towards the end of last year, the Resolution Foundation called for a voluntary code of practice - due to concerns about the ways sites communicated their commercial relationships with providers. Separately, analyst Defaqto said price comparison sites are misleading in that they imply whole-of-market coverage, which no site actually offers. Suggestions have also been made that the time is ripe for the formation of an aggregator trade body to raise standards.
So, what action from the FSA - if any - is likely to be forthcoming? There are two clearly defined camps: those who want to see tougher rules and those who say the regulator should leave well alone.
It is notable that no insurers are calling for tougher rules on aggregators. Cathie Bruce, distribution and customer service director for Groupama, says: "I've been in plenty of heated meetings where others have said aggregators are dreadful and more regulation is needed. But they are a shop window. It's up to insurers to supply responsible products that suit a mass market. We all want a competitive advantage and should accept different distribution channels."
Groupama, which only supplies its products to aggregators through brokers, has been approached to offer stripped-down products - only to be refused by Ms Bruce. "This is where the problems lies; putting profit first will lead to problems. Overall, I would agree we need more consumer education so people understand what they are buying, but this is different from more regulation."
Likewise, Keith Morris, managing director of insurer Sabre - which also only uses brokers on price comparison sites - comments: "Aggregators bring something to the party. Problems can arise from some of the defaults on sites and we have been supplied with wrong information, but generally they are a good experience. If anything, they have brought more transparency to the market, particularly in comparing direct insurers. I would not have thought there were sufficient reasons to warrant greater FSA involvement."
John Salmon, partner with law firm Pinsent Masons, is another unconvinced by calls for further regulatory intervention. His firm's work in this area has increased enormously as more insurers have sought to link up with the sites. "Aggregators open the marketplace, but are more than a Yellow Pages. To date, aggregators have strict agreements where consumers cannot go direct to the insurers and obtain the product cheaper. So I think insurers will look to have greater input into these agreements. However, aggregators are successful and offer a route to market that can be cost-effective for insurers. In legal terms, insurers will also be taking a closer look at data-sharing issues but you can't get away from the fact aggregators are successful."
Biba may have focused on the hot topic of consumer protection in its research, but it is also an impassioned trade body that champions the role of brokers both large and small. So while aggregators do use brokers, they also take business away from them, as Mr Morris explains: "I understand Biba wants to protect its members, but there are brokers doing well through aggregators. I don't think attacking the sites is particularly helpful. It's just that a lot of small brokers are already having a tough time."
Aash Patel, a senior consultant with Winchester White, agrees: "There are obviously political reasons why Biba is campaigning in this area. I can see a place for a voluntary code, although insurers also bear a responsibility and too many continue to use technical terms." He stresses, however, that he is not clamouring for a code. "If there is to be further regulation, I believe it will be some way off. If aggregators were handling claims it would be different, but they aren't - you can't compare straightforward personal lines with complicated investments."
Mr Patel believes price comparison sites will win yet more market share. "The next big move will be into commercial lines. We will start to see more small-to-medium sized enterprises on the main sites; there's already Iprism, which offers comparative business quotes."
Another imminent launch is that of Coverzones, a project currently under wraps but set to offer comparative quotes online. "Small to medium-sized enterprises are going to start thinking 'why go to a single insurer when there are commercial aggregators?' I have sympathy for small brokers but this is a tough market with a lot of entrepreneurial people around," says Mr Patel. "And it's not just brokers who are being left behind, some insurers have also found they don't have the resources to cope with the extra business created by aggregators or the technology - aggregators have created the need for some hard thinking and investment."
Price comparison sites themselves were quick to adopt a defensive stance following Biba criticisms (Post, 24 January 2008, p4), claiming they are already regulated. Kal Samra, managing director of Comparethemarket, says: "I don't feel that a trade body is needed here any more than in other areas of internet business. In our view, the code of practice that has been mooted doesn't offer additional benefits to the consumer. The FSA's requirements on Treating Customers Fairly already ensure that customer care is at the heart of what we do."
And, Richard Mason, managing director of insurance at Moneysupermarket, retorts: "Is the public complaining? I think price comparison sites have hit some brokers hard and this troubles Biba. We welcome the FSA and Ombudsman, but that is not going to help brokers."
According to Mr Mason, aggregators are at the forefront of a brave new world of insurance distribution. "We have established insurers alongside new providers, such as Quinn and Swiftcover; we have forums where people can ask questions and give opinions; we're online, but our customers can communicate with experts and anyone can contact me. My point is Biba can't pretend that all brokers are meticulous about service, some are dinosaurs. There are lazy brokers who just sit back waiting for renewal commission. What's more, many people are also turned off by direct insurers' scripted call centres - they prefer to be making decisions themselves but with back-up."
He agrees that SME and commercial motor will take off on aggregator sites and argues brokers should get involved rather than fume. "We're happy to talk to more brokers. Just this week we've had customers wanting cover for properties with subsidence and non-standard motor - it's about providing what people want. There remains room for brokers; Biba's research is not going to change anything."
Peter Ballard, managing partner of user experience consultancy Foolproof, also believes aggregators are set to grow and evolve. "You have the first generation, which is all about price, then you have those focusing more on product features. Next, you'll see greater involvement from customers: opinions, claims experience and comments, not unlike book or film reviews on Amazon."
But would such developments cause regulatory problems? Mr Ballard does not think so. "If anything it would make poorly performing insurers pull their socks up. You would need monitoring, but such sites tend to be self-policing; if someone was negative about an insurer and others disagreed, they would communicate this. It's healthier than heavy regulation."
Not everyone, however, is dancing to the aggregators' tune. David Quick, managing director of broker network CETA, believes there are problems with price comparison sites. "The public is not clear on how these sites operate and there's confusion about small print and the fact higher excesses are often imposed as a default to obtain a cheaper price. To suggest that brokers, who often provide a far more straightforward service, can simply link to an aggregator is wrong. The aggregators take too much in commission; there needs to be a code of practice. Biba has done well to raise this issue."
Those who are independent of the debate can also see Biba's reasoning. Deloitte partner Catherine Barton says: "When we compared quotes for an identical risk from four major aggregators we found a variation in the number of quotes provided by each one. The absence of true like-for-like comparisons on aggregator sites may interest the FSA with its focus on TCF regulation. Aggregators operate like brokers yet do not yet seem to be regulated like them - this could impact their growth."
Ian Hughes, managing director of analysts Consumer Intelligence, agrees that Biba has scored a publicity coup but argues the trade body's research was "flawed", pointing out only a small sample of 250 was used and only half of these purchased online. He says the overwhelming reason people go to aggregators is to find the cheapest deal. "Our research shows the people who use aggregators are the most price-sensitive in the market. In fact, 78.7% of people who use a price comparison site say that price is very important to them - as opposed to just 67% of people who don't use a price comparison site. So if someone wants service and quality then there is a clear role for brokers here."
Calls for regulation
Lyndon Wood, chairman of broker Moorhouse, says he is certainly not losing sleep over the rise of these sites - but believes there is a role for "a governing body to police the aggregators, given their enormous power of lead generation and the volume of consumers accessing insurance products via these sites. As all businesses, they need to improve and be more transparent".
He adds: "Quite often the end provider, being the insurer or broker on the aggregator site, grosses up the premium to accommodate the aggregator charges, which can be between £30 and £50 per sale. This means the consumer does not necessarily get the best price. But aggregators have a place in the market alongside direct writers and brokers - we have to coexist and build our own unique value propositions for our customers."
Price comparison sites certainly seem set to stay and grow in number. Deloitte partner Stephen Ross says: "We are expecting new aggregator entrants in 2008 that will likely be associated by major consumer brands."
To date, aggregators are not causing much work for the Ombudsman. A spokeswoman says she is aware of the current controversy, but emphasises there has been no flood of complaints: "We have had a few linked to pricing, but the main area for us is claims and these are not part of the aggregator remit."
Sources say the FSA is looking to regulate more insurance providers like it wants a hole in the head, but Biba's research has clearly hit a nerve. Opinions are divided as to whether this sector needs more scrutiny and it could be argued that the model lends itself to a lighter touch regulatory regime. But the FSA has said it will look afresh at aggregators - even if only to placate the media perhaps. Are the problems as severe as the payment protection insurance mis-selling crisis or the Northern Rock debacle? Perhaps not, yet one fact is clear: in raising a topic that would arguably otherwise have been ignored, Biba has done good.
Uncertainty still surrounds the position of aggregators and VAT. Last year, Insurancewide lost a landmark tribunal, during which it was found ineligible for a VAT exemption (Post, 1 November 2007, p1). It is understood Insurancewide may be going to appeal but the company declined to comment.
David Fownes, VAT director at Deloitte, says HM Revenues and Customs has commented it is not seeking to apply the decision universally against all aggregators. "Only internet services that are pure facilitation or 'click-throughs', where there is no real insurance-related input or active endorsement of a product, are likely to be subject to VAT."
He adds Insurancewide has been "unfortunate" and that any business earning income from insurance introductions, especially from internet 'click throughs' or branded products, should consider its position.
To gain VAT exemption, aggregators must demonstrate they are playing an active role in addition to making an introduction, such as negotiating terms and conditions of the insurance, assisting with forms and queries and actively endorsing the insurance products he explains.
This is a grey area, as David Quick, managing director of broker network CETA, says: "All these sites look the same to me and they may be getting away with not paying VAT by a trick in their wordings. It would not surprise me if they all became eligible to pay."
And Lyndon Wood, chairman of broker Moorhouse, says other aggregators may face investigation in this area. "I'm sure we will see a reversal of some business from aggregators back to brokers over time but not just yet. This will probably come about out of charges being placed on them by VAT or a levy from a governing body and the need for the aggregator to pass the cost. Time will tell."
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