Internet AIDS Shopping Around for Finance Deals
Jun 29, 2007By Jeremy Gates
The internet is transforming so many personal finance transactions by making it easier to compare online the relative attractions of mortgages, bank accounts, personal loans, home or car insurance, credit cards and other financial products.
Consumers clearly like to shop around: about 90 per cent of income earned by www.moneysupermarket.com comes, directly or indirectly, from commission earned by sales.
The site makes annual profits of pounds 30 million and could be worth pounds 1 billion if and when it floats on the stock market.
But comparison sites are under attack in a campaign by insurer Direct Line, part of Royal Bank of Scotland, which claims they are "middlemen" providing "inaccurate" and "misleading" information.
Direct Line says 41 per cent of consumers mistakenly believe that price comparison websites quote all major insurers, and 35 per cent believe all insurers, both big and small, are quoted.
Barely a quarter of consumers realise that some comparison websites are affiliated to a particular financial group. Many consumers, says Direct Line, think websites are funded entirely by advertising, and are completely impartial.
Says Direct Line spokeswoman Emma Holyer: "We cut out the middleman 20 years ago and made a decision then to deal direct with consumers.
The fact is that most comparison sites are guided entirely by price, when we need to explain important policy benefits like courtesy cars, named driver benefits and discounts.
"The one-size-fits-all approach might work for loans - but it doesn't for insurance."
Others are questioning the internet-driven market developing in the financial sector.
In its analysis of "Home Insurance in the UK", financial research company Defaqto claims many companies, instead of trying to extend cover and improve services to customers, are much keener to launch price wars to win new business.
"Increasingly," says Defaqto, "they offer large discounts and incentives to new customers, while continuing to charge the same prices to loyal customers.
"New customers can earn a cashback of up to pounds 125 by applying through online cashback websites," Defaqto adds.
"The average payout from these sites is pounds 30-pounds 60, and has risen by around 60 per cent in the past year. Customers with separate building and contents policies can end up paying very little for cover."
Defaqto claims that growing broadband internet usage is changing the way we buy home and motor insurance.
Says Defaqto's Brian Brown: "The rise of price comparison is forcing insurers to offer larger discounts schemes to the detriment of sound underwriting discipline.
"Is it fair that two customers with exactly the same risks pay markedly different amounts for their policies? It appears that increasingly loyalty never goes unpunished and rewards are only available for the disloyal."
Even Moneyfacts.com, a money search engine listing best products for buyers and savers, has its critics.
Six years ago, it launched a Datascreen service exclusive to banks and building societies which costs each of them around pounds 11,000 a year.
Moneyfacts spokesman Andrew Hagger says this is intended to allow each company to check the details of its products as they appear online - but Mike Lazenby of Kent Reliance BS is furious that companies which won't pay will be excluded from Best Buys charts for small savers.
Says Andrew Hagger: "We have to make a decision about this. We can't give Mr Lazenby access to Datascreen for nothing, when his rivals are happy to pay.
"But if we take Kent Reliance off our database entirely, we don't give consumers the full range of accounts available to them."
More trouble is brewing at the car insurance website Confused.com, so successful that its parent company, Admiral, might sell up for as much as pounds 1 billion.
Since its launch in 2002, Confused.com claims to have helped nearly 20 million people save money by finding the right insurer, breakdown provider or energy supplier.
But from July 1, it intends to charge companies keen to appear in its tables pounds 7,500- pounds 15,000 per month for inclusion.
If many firms refuse to pay up, Confused.com could soon be giving a rather incomplete picture of the market.
Hayley Parsons was in the team which built Confused.com, and now heads the South Wales-based team at gocompare.com, launched in November 2006 and already supplying 10,000 quotations each day to motorists.
The operation is partly funded by a large loan from the insurer Esure.
"Our strategy is to take comparisons of motor cover to a new level with more detailed product comparison," she says.
"We include details like availability of courtesy cars, windscreen cover, personal accident cover, breakdown help, a UK- only call centre, a 24-hours claims helpline and European certificates.
"We try to show exactly what you get for your money, where some sites do focus entirely on price. We also show total excesses payable, where some sites only show approximate excesses."
Stuart Glendenningat www.moneysupermarket.com calls Direct Line's campaign "completely misleading".
"We would like to list them on our site free of charge," he says. "If they do not have an 'Apply' icon on the site, we would not be in any sort of commercial relationship with them.
"We only earn money from companies which request an Apply icon, and when customers use it to enquire into or buy a product: on a mortgage, we might get pounds 250, on insurance cover perhaps pounds 40.
"As for Direct Line telling people to go direct to suppliers, how ridiculous is that in an age when the internet is making the market in financial products so ruthlessly competitive?
"I can only guess that Direct Line does not want us to list its products because they might not compare well with others.
"Direct Line built an image of cheapness 15-20 years ago, but their premiums might no longer be the lowest customers can find."
Says Hayley Parsons at gocompare.com: "Direct Line is ill-judged to call us middlemen.
"We earn a small fee for each sale generated, and if Direct Line used us, it could reduce costs to benefit its other customers."
Hayley Parsons actually believes Direct Line's campaign is raising awareness of comparison websites.
"Our response rate has doubled since it began, so it may have seriously backfired on them," she says.
It seems consumers might have decided that comparison sites are a useful, if not necessarily a comprehensive, research tool.
Then they can always get individual quotations, as Direct Line is so forcefully suggesting.
New customers can earn a cash back of up to pounds 125 by applying through online cash back websites
Defaqto
(c) 2007 Birmingham Post; Birmingham (UK). Provided by ProQuest Information and Learning. All rights Reserved.
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