On 16th July 2014, the FCA published the results of its Thematic Review into price comparison websites (“PCWs”) in the general insurance sector.
The Review focused on general insurance products offered to retail customers, with the spotlight in particular on private motor, home and travel insurance, and whether PCWs were complying with requirements and providing appropriate information to ensure consumers were able to make informed choices when purchasing an insurance policy, as well as the extent to which PCWs had implemented guidance issued by the FSA in 2011. As part of the Review the FCA considered information from 14 PCWs, conducted desk-based reviews and undertook in-depth consumer research with 50 participants.
The FCA’s Review was prompted by the increase in popularity of PCWs among consumers. However, this is not the first time that PCWs have been on the FCA’s radar. Between June and September 2010, the FSA carried out a thematic review into the selling of general insurance policies through price comparison websites, with the intention of better understanding how firms which sold regulated insurance products and services online were designing and developing their business models to ensure the fair treatment of consumers. Building on earlier guidance (issued in response to the 2010 thematic review) put in place by the FSA in 2011, the Review signals that the issue of ‘fair outcomes’ for consumers remains key to the FCA’s focus, with the FCA wanting to ensure that the rapid growth in popularity of PCWs has not come at the expense of the interests of consumers, particularly with regard to transparency and fairness.
Although specifically applicable to PCWs and general insurance products, the findings of the Review have a wider relevance. In addition to those PCWs that provide a comparison service for general insurance products, the FCA also expects PCWs that deal in other financial products, as well as product providers themselves, to consider the findings, and work alongside PCWs to address any issues identified.
The Review identified the following particular areas of concern:
1. PCWs did not provide clear and consistent product information to consumers, including on:
- Level of cover, key features, exclusions and limitations. In particular, PCWs were found to present the price of the core product more prominently than other information, thereby exacerbating the risk of consumers purchasing the cheapest product even where it was not the most appropriate, and limiting their ability to make informed decisions;
- Policy excesses;
- Add-on policies, including the main features of the product, the price and level of cover, and the main exclusions and limitations; and
- Pre-existing medical conditions for travel insurance.
2. PCWs did not make clear their role in the distribution of the general insurance products or the nature of the service which they provided. In some instances:
- PCWs referred to themselves as introducers, even though they had the appropriate permissions of a general insurance intermediary;
- Consumers mistakenly believed that they had received advice or guidance via the PCWs, or that the PCWs had delivered quotes which were tailored to their individual circumstances;
- PCWs did not provide particularly accessible information regarding their remuneration policies, or did not adequately disclose their potential conflicts of interest (although the FCA found no evidence of firms using such non-disclosure to their commercial advantage); and
- PCWs did not have secure access controls to customer’s accounts, exposing the customer to the risk of sensitive information being inappropriately disclosed.
3. Some PCWs had failed to comply fully with the regulatory obligations as set out in the 2011 guidance.
In addition to the core areas discussed above, a number of other areas of concern were identified by the Review. In particular, it was found that:
- The majority of PCWs did not regularly review their website to ensure that their terms and conditions and other general disclosures were up to date and compliant with regulatory requirements;
- Some PCWs did not explain clearly to the customer how they would use their data;
- A small number of ‘white labelled’ PCWs did not have appropriate permissions; and
- Many of the PCWs had misleading financial promotions which were in breach of ICOBS and Principle 7.
Following the publication of the Review, the FCA has provided individual feedback to those PCWs involved, requesting that they take actions on the specific areas identified as requiring improvement (with follow-up intended to take place by January 2015). The regulator will also provide feedback to, and engage with, the wider industry on its findings.
Although not implementing prescriptive rules regarding the type of information and level of detail that must be provided to customers, following the Review the FCA expects PCWs (and product providers) to commit to a number of actions points, including:
- Taking reasonable steps to ensure that consumers are provided with appropriate information to make informed decisions;
- Allowing consumers easily to compare products by providing a consistent level of information for each product provider featured;
- Clearly explaining their role in the distribution of the product and the nature of the service provided;
- Ensuring that relevant regulatory and legal obligations are complied with, including those relating to complaints, data management and conflicts of interest; and
- Ensuring that the interests of customers are genuinely at the heart of how PCWs run their businesses.
The FCA has also suggested that, alongside the Review, PCWs consider the EIOPA January 2014 report on good guidance practices on price comparison websites.
A number of the issues identified by the Review, particularly those relating to the failure of PCWs to provide appropriate information in respect of add-ons, are consistent with the findings of the FCA market study on general insurance add-ons (“GIAO”) as well as the findings of the Competition & Markets Authority in respect of private motor insurance add-ons, and are being considered further in this context.
This FCA Thematic Review, coming hot on the heels of its Review of Broker Conflicts of Interest, continues the FCA’s focus on the particular risks posed by the insurance market and emphasises the FCA’s strong message that customers’ needs must be put at the heart of any business.