The Competition and Markets Authority has been investigating the insurance market, and within its 12 June proposals – likely to be enacted in September – is a seemingly innocuous clause that could signal a huge change to how people find cheap car and home insurance. It could also signal the death knell for some car insurance cashback.
So let me bash out a quick analysis on what I expect to happen. The key recommendation I am focusing on is this one…
A ban on price parity agreements between price comparison websites and insurers which stop insurers from making their products available to consumers elsewhere more cheaply.”
The mischief this aims to solve is where some big comparison sites have agreed with insurers that their rivals won’t get cheaper prices.
It seems Compare The Market has been the main mover behind this. It’s become the market leader, not on the back of winning the "cheapest prices" game, but because of its marketing, and especially its remarkably successful meerkat toys.
It can keep full margins without price competition between comparison sites. As full margins benefit it, its interest is in keeping all prices homogenous.
What this means for price comparison sites
If this new rule is enacted, as seems almost certain, it’s likely to mean we will see comparison sites negotiating bespoke pricing with individual insurers. So different comparison sites will have different prices – and there will no longer be the relative homogeneity on pricing.
If this happens at the scale I anticipate, it means the big sites will no longer be comparisons in the strictest sense. Instead, they’ll be insurance marketplaces, with their own pricing plans.
In our Cheap Car Insurance and Cheap Home Insurance guides, we already suggest using more than one comparison site. That’s done mainly to broaden coverage (as different comparison sites cover some different insurers at the margins), but from September this is likely to be even stronger, as the insurance marketplaces will need checking in their own right as they’ll have different tariff plans for each insurer.
Of course there’s also the potential that some insurers will decide to offer cheaper pricing "direct" – though the might of the comparison sites will likely stop all but the biggest brands, which are willing to push their marketing hard, from doing this.
The impact on cashback sites
Currently the last element of our car and home insurance solution is, once you’ve found the cheapest provider, to check cashback sites to see if you can get money back.
This is based on the fact that the prices are the same through cashback sites as through comparison sites and going direct. We’ve heard some saying they’ve seen different prices, but when we’ve investigated, we’ve struggled to back this up.
Under the new system, it’s likely the comparison sites will be undercutting cashback sites because of their bigger negotiating power and the fact that cashback site users tend to churn more.
Therefore while you may still get the cashback, the gap between getting the cashback and just getting the cheaper price is likely to narrow.
I’d love your thoughts on this.