Wednesday, 24 September 2014

Clamp down on comparison websites

The growing clout of price comparison websites like Gocompare, Comparethemarket and has stirred the UK authorities into trying to stop them abusing their power.

This is a new front a battle to contain the influence of internet sellers who gain easy access to millions of shoppers by advertising on TV and promising better choice and value.

This time the sites stand accused of charging us too much for car insurance by forcing insurers to accept agreements preventing other players from offering discounts.

The result, the Competition and Markets Authority is saying today, is that we are paying too much. The AA puts it at £20 too much per policy.

So how powerful are these websites? If you look at the detail of the CMA's report, you see how they have crept into a position from which they can force some of our biggest companies to do their bidding.

Although only 23% of motor policies are sold through the sites, 56% of new business -- not renewals, that is -- goes through them.

Of those policies, between 80% and 90% have been sold with the aid of special price agreements which defend the price comparison sites from being undercut -- agreements which insurers signed because these internet operators are the main way of winning customers.

Their operating margins are a very healthy 25%. That's a rate of profit which most financial firms would view with envy.

The CMA is banning agreements under which insurers concede that no one else will be able to charge less the the price comparison site.

This isn't the first attempt by the UK authorities to clamp down.

Over the summer the financial watchdog, the FCA, fired a shot across the bows of price comparison websites, accusing them of giving users insufficient information to choose products.

What happens is that you are lulled into thinking price is everything and don't check what you are buying. With insurance, you might get a cheap policy, but the level of cover might be totally inadequate.

And earlier this year, the Office of Fair Trading -- now part of the FCA -- had a go at the hugely influential websites which book hotel rooms and had deals in place with hotels to stop other online agents from offering discounts., Expedia and Intercontinental Hotels gave undertakings to permit the discounts, giving people the opportunity to shop around.

All these are skirmishes in an ongoing contest which pits regulators against a growing army of internet giants, who tell us they are on our side but can't always be relied upon.

The main problem with the price comparison and hotel booking sites is that they could rightly claim to be offering the cheapest deals - but that was only because other deals had been excluded.

Can they be contained? The CMA is showing that they can be, to an extent.

It is banning price agreements which cover the whole market. However, it won't prevent comparison sites from stopping the insurer offering a better price for cover on its own website.

These businesses are highly profitable, cheap to run and enjoy significant market power. It won't be long before they lock horns once again with those bodies whose job is to protect us from being overcharged.

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