Price comparison websites in the spotlight

Price Comparison Websites (PCWs) are popular tools amongst tech-savvy consumers, especially in the consumer goods, energy and financial sectors. The key to their attractiveness is that they allow consumers to quickly search for and compare the best deals in the market. PCWs usually operate on either a flat-fee, or a commission-based model and attract new customers via online and offline advertising. Some of the biggest players have become very profitable, thus attracting new companies to enter the market.

However, all that glitters is not gold. In certain sectors, PCWs are subject to the growing demands of regulators, who want them to become more transparent, credible and wholly-independent. As such, in the UK, regulators such as the Financial Conduct Authority (FCA), Ofgem (gas and electricity regulator), the Competition and Markets Authority (CMA), or the Office of Fair Trading (OFT) have already conducted investigations in an effort to improve the services they offer.

At the European level, there are also several directives that, when transposed into national legislation, impact PCWs directly, such as the Misleading and Comparative Advertising Directive, the Consumer Rights Directive, and the Data Protection Directive.

In the following analysis piece we take a closer look at the impact of regulation in the energy and insurance sectors.

Switching energy supplier has never been easier

The Energy Act 2013 contains several consumer protection provisions. For instance, it allows Ofgem to extend its license regime to third-party intermediaries, such as switching websites. The Energy Act also:

sets a limit on the number of energy tariffs offered to domestic consumers;
requires the automatic move of customers from poor value closed tariffs to cheaper deals;
requires the provision of information by suppliers to consumers on the best alternative deals available to them;
provides a new enforcement power for Ofgem to require energy businesses that breach gas or electricity licence conditions, or other relevant regulatory requirements, to provide redress to consumers who suffer detriment as a result of the breach.

Energy switching websites allow individuals to compare the offers of different suppliers, based on several criteria, such as where they live and what their annual energy consumption is. Therefore, they make it easier and faster for customers to switch suppliers. In March 2013, Ofgem took over the responsibility for managing ‘The Confidence Code’ from Consumer Focus. The Code sets out a set of key principles that its members must follow in order to obtain an accreditation. Several switching websites have already voluntarily adhered to such code and are therefore accredited by Ofgem.

The energy regulator is currently also seeking to decrease the number of weeks it takes to switch energy suppliers. It currently takes 4-6 weeks, but according to Ofgem’s announcement in June 2014, by the end of this year it should take 17 days. By 2018 the regulator is aiming for next day switching.

At the EU level, institutions are also taking note of PCWs. On 30 June 2014, the European Commission’s DG SANCO published the 10th Consumer Markets Scoreboard, which tracks consumer conditions in 52 different markets for goods and services. Its findings indicated the need to conduct an in-depth study into the retail energy market. The Commission stated: “since 2012, the utilities markets continue to underperform poorly in terms of comparability of offers, choice of providers, ease of switching and actual switching”. In the UK, the CMA could potentially take note of the Scoreboard, as well as the Commission’s study.

Upcoming regulation in the insurance sector

The comparison and sale of insurance products through PCWs has attracted the interest of regulators for the past couple of years. In 2012, the OFT contacted 100 insurance PCWs and issued a report which outlined some of their concerns, such as data protection. The OFT has also referred the private motor insurance market to the Competition Commission for investigation, and a report is expected to be published in September 2014.

The FCA announced last year that it was planning an investigation into PCWs in 2014 due to issues of transparency, lack of information and conflicts of interest. As such, it has begun a thematic review of 14 PCWs and several insurance brokers. The FCA released the results of its findings this week, which showed that:

PCWs do not make clear what their role is with regards to the products or services they offer.
Not all PCWs, which were part of a larger group of insurers or brokers, disclosed potential issues of conflicts of interest, despite this being against FCA rules.
PCWs had failed to fully implement the Guidance published in 2011.

Clive Adamson, FCA director of supervision, said: 'We expect price comparison websites to take on board the findings of the review. It is also 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.'

The FCA review also said that the findings will have relevance beyond just general finance products, particularly those that impact on consumers’ ability to make well-informed decisions.

At the European level, the Insurance Mediation Directive (IMD) is currently being reviewed. As it is a minimum harmonisation directive, it has been transposed into national legislation in different ways. In some EU member states PCWs could be considered as insurance intermediaries and fall under the scope of the IMD.

But should PCWs be regulated at all?

According to regulators, in order for PCWs to provide a useful service, they need to be transparent and impartial tools, i.e. they need to guarantee customers that they are indeed getting the best deals. Certain PCWs charge companies certain fees in order to feature on the site, but that does not necessarily mean that their deals are better than others which are not listed. In this sense, regulation could address issues of conflicts of interest.

Similarly, regulation could empower consumers by mandating PCWs to provide clear details and explanations about the products they advertise.

If regulatory measures are to be introduced, PCWs may need to:

Provide clearer information on the products and services they offer
Face liability in case of complaints or breach of their obligations
Provide more information about the companies featured on the site, as well as their deals and policies
Show customer reviews or feedback
Have data protection policies in place
Have open and clear prices for companies to be featured on the site in order to provide fair access to smaller firms

The benefits of regulation seem clear from a consumer protection perspective. However, PCWs may not initially welcome such a move from regulators, as it may impact their business model and future revenues. It is important for PCWs to be aware of the regulatory challenges they may face if they operate in certain sectors. They should also bear in mind that legislators could take the advice or recommendations from regulators in order to take legislative action, both at a national and European level. The involvement of consumer groups and their push for stronger regulation has also been quite significant. For instance, James Daley from consumer group Fairer Finance, has said: “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 internet has become a powerful tool with regards to freedom of and access to information; price comparison tools have become a part of this digital revolution. We can now easily compare flights, hotels, insurance products, or even washing machines. But how do we know that the information we obtain is truly impartial? Are we really getting the best deal? This is where regulators should step in, in order to find ways to establish and enforce certain rules which allow these companies not only to operate, but also to continue innovating for the benefit of consumers.