The Financial Conduct Authority (FCA) has published a report on the findings of its thematic review into price comparison websites (PCWs). The thematic review was announced in November last year. The FCA focused on the sale of retail general insurance products (home, motor and travel insurance) as these products were most frequently bought through PCWs.
In summary, the FCA has found that:
- not all firms complied with the regulatory guidance issued by the Financial Services Authority (FSA) in 2011;
- information given to customers about policies is not always sufficient to ensure that they make an informed decision;
- PCWs are not always clear about the role that they play in the distribution chain; and
- PCWs had not always disclosed relationships with brokers or insurers with sufficient clarity.
The thematic review was undertaken in order to ascertain whether retail customers are getting fair outcomes when buying cover through PCWs and the extent to which sites had implemented the guidance issued by the FSA in 2011.
What has the FCA found?
Information given to customers is not always appropriate
The FCA has found that PCWs do not always present information on policies in a clear and consistent way meaning that customers do not always make fully informed decisions. This was the FCA’s finding in relation to core policies as well as add-on products. The potential result of the failure to provide customers with the right kind of information at the right point in the quotation journey was that customers did not always fully understand what they were buying.
The review did find a number of good examples where details of policy features, exclusions and add-ons were easily available through suitably labelled buttons such as ‘more info’. The FCA view is that where sufficient information about the features of the product were accessible through such buttons, PCWs had taken reasonable steps to ensure that customers could access the right information about the product. Buttons that implied that a sale would be concluded (such as ‘buy now’) were less likely to be clicked on for further product information meaning that customers were dissuaded from comparing product features. Although a number of PCWs did provide links to product information the FCA has found that the level of policy information varied amongst the different sites reviewed – some PCWs were much better at clearly setting out the features of the policy in a comprehensive and simple manner.
Prominently displaying the price of the product above other features is still a concern for the FCA. Website designs that place significant emphasis upon price combined with the difficulty of accessing product information leads to a large number of customers buying the cheapest policy on offer. According to the FCA, the willingness of customers to look only at price has exacerbated the practice by some providers of stripping back product features to ensure that their quotes reach the top of the search results.
The FCA states that PCWs should more regularly review the suitability of information disclosure to ensure that they are up to date and fit for purpose.
The FCA has also found that some PCWs did not take reasonable steps to make it clear to customers that pre-existing medical conditions were excluded for many policies. Some sites only requested disclosure of conditions at the end of the quotation journey. In other circumstances questions about conditions were too vague to be comprehensible to customers.
The thematic review also found that the failure to present sufficient information about products to customers means that firms are not meeting their obligations under ICOBS. Specifically, the lack of clear policy information means that some customers are buying products that do not meet their needs, some are buying policies under which they would be ineligible to claim and some are paying too much for the cover they need.
The FCA has stopped short of suggesting any required simplified disclosures.
The role of PCWs and their business models
In keeping with the continued regulatory focus on business models, the FCA has reviewed whether PCW models are appropriately aligned to fair outcomes for customers.
The review found that PCWs were not always clear about the role they played in providing quotations to customers, describing themselves as ‘introducers’ when their role was wider than this. Contrary to the FSA guidance in 2011, a few PCWs were still presenting misleading information about their role in helping customers choose policies, with the result that some customers might believe they were being given advice about the policies they were buying.
Not all PCWs were clear about how they were remunerated for their services. Indirect costs, such as fees paid by the product providers, are often passed on to customers but the service provided by PCWs is described as ‘free’.
The FCA is also concerned that customers are not made sufficiently aware of whether a PCW is part of a wider group including brokers or insurers quoted on the website. Although the FCA has found no evidence that any groups have used such relationships to their advantage, firms have not met the disclosure requirement found in ICOBS. Clearly disclosing these relationships on the site and having systems in place to manage any conflicts of interest are measures suggested by the FCA to avoid misleading customers about potential conflicts.
Diligence on providers
PCWs should be undertaking more due diligence on the providers (intermediaries and insurers) used on the site. PCWs should periodically assess whether providers hold the right regulatory permissions and should consider whether they need to undertake diligence further up the distribution chain.
Data security and use of data
The FCA review found that some PCWs did not have secure access to customers’ accounts, relying on only the most basic pieces of customer information such as postcodes, date-of-birth or policy number.
A number of PCWs relied upon pre-ticked boxes for agreeing to terms and conditions and the sharing of data without providing an option to opt-out of data sharing.
PCWs have low complaints numbers as it is usual for the provider to handle the complaint. However, the FCA has found that guidance on how to make a complaint was not always easy to find and can refer to a two-stage complaints process which is no longer in line with FCA rules.
The review found that many PCWs had used misleading financial promotions in breach of ICOBS rules and Principle 7 of the FCA Principles for Businesses. All such promotions have been withdrawn or amended since the FCA notified them of the breach.
The FCA has stated that it expects PCWs to take the following actions:
- take reasonable steps to ensure that consumers are provided with appropriate information sufficient to make an informed decision. This will require more than just price and should include level of cover, key features, benefits, exclusions and limitations;
- provide consistent levels of information for different providers;
- make clear their role in the distribution of the product;
- ensure that they are complying with all relevant regulatory requirements including complaints, data management and financial promotions, in addition to legal obligations; and
- ensure that the interests of customers “are genuinely at the heart of how they run their business”.
The results of the thematic review should send a message to all retail insurance providers, not just PCWs, about the importance of ensuring that the information provided to customers is easy to understand. All firms involved in retail general insurance markets would be wise to read the results of the review and consider what messages will be applicable to their own business model.
Clearly those operating PCWs should ensure that they are meeting all the expectations identified by the FCA. The review calls for PCWs to ensure that the design and functionality of sites assists customers in choosing suitable products. This requires better collaboration between compliance and legal teams and website designers to ensure that the information presented to customers is engaging and attractive but also compliant.
The results of the review also indicate how interested the FCA is in simplified information. After a decade of growing information requirements and lengthy disclosures the regulator is now seeking simplified product information. Can this realistically be achieved without reducing the underlying cover? Drafting simple but legal policy information is becoming more of an art form and requires full knowledge of the current regulatory climate. Too much information and the customer cannot see the wood for the trees. Too little and firms risk misleading their customers. The difficulty is that it is not yet clear where just right lies.
View TR/11 – Price comparison websites in the general insurance sector, 16 July 2014