GlobalData Plc

Digital comparison tools under new CMA investigation

The Competition and Markets Authority’s (CMA’s) investigation into digital comparison tools (DCTs) seeks to increase competition and improve transparency in how they operate, which will maximize the benefits for consumers using the channel.

Following its reviews into the private motor insurance, energy, and banking sectors, the CMA has launched a new study into DCTs. Previous CMA studies have highlighted how DCTs play a powerful role in increasing market competition by helping customers compare products, find better deals, and consequently switch insurer. The new study seeks to build on this by researching how these benefits can be maximized for customers, and how to overcome any barriers to how they work.

The study will address four key themes:

  • What consumers expect from DCTs, how they use them, and their experiences.
  • The impact of DCTs on competition between suppliers listed on them.
  • How effectively DCTs compete with each other.
  • The effectiveness of existing regulatory approaches to DCTs.

The study, which aims to help improve the functionality of DCTs, will be beneficial for customers using the aggregator channel. But it is worth noting that this is not the first time they have been under the spotlight in terms of how they sell insurance. Investigations into the private motor insurance market and the sale of add-ons have also assessed the role of aggregators.

According to our 2015 General Insurance Consumer Survey, 57.1% of car insurance customers used an aggregator as a research tool before purchasing, as did 54.1% of home insurance customers. This highlights the large influence price comparison sites have on consumer purchasing decisions.

Due to the high volume of customers who use aggregators as a research tool before purchasing, the CMA also seeks to improve transparency and consumer understanding of how aggregators operate to make money, and how this impacts the services they offer.

Many customers may believe that price comparison sites are impartial, and are not aware of commission and arrangements between DCTs and suppliers that may restrict competition. Considering that 63.8% of customers always choose one of the top five quotes on a price comparison site according to our survey, how aggregators rank deals is highly important. Customers should be able to trust the information provided to them through price comparison sites, in order to enable them to make the best decisions. The majority of customers are also loyal to one aggregator, which can prevent them from viewing a wider range of products and prices, as aggregators have panels of different insurers.

Overall, the study will be beneficial for customers. Competition will intensify and transparency will increase, which will result in better customer outcomes. Although it will bring new challenges for insurers, another investigation will ensure that customers are kept at the heart of service.

By Danielle Cripps, General Insurance Analyst

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