Cover or price?

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Recent consumer regulatory guidance issued in the UK has suggested that price comparison websites (PCWs), or aggregators, should be focusing on cover more than price. How have these changes affected PCWs and their travel insurance consumers in the UK – the world’s aggregator market leader – and what does the market look like in other countries?

Aggregators are recognised for their valuable service to consumers around the world. They allow customers, including those seeking to purchase travel insurance, to obtain different quotes from a variety of insurers and gather them on one website so that they can choose which one to buy. According to Discover IT (UK) Ltd, a company that builds and hosts online business applications for insurers and intermediaries, the model allows consumers to find a suitable financial product online, specifically tailored to their insurance profile, 
in a convenient and effortless way1. 
 
UK market taken to task
UK aggregators have started to grow in response to what Discover IT refers to as a ‘substantial increase in the amount of insurance contracts concluded via the Internet in recent years’1. What’s more, many of them have evolved to become more in tune with the needs of their customers. 
 
UK comparison site MoneySuperMarket, for example, aims to offer its customers clarity and transparency, and the opportunity to complete the whole purchase on its site, as explained by the company’s head of travel insurance Zena Carter. “[The website] strives to provide as much information as possible in the most transparent way to consumers looking to take out a travel insurance policy, to ensure it is most suitable for their needs,” she said. “We want customers to be as informed as possible when making the choice to purchase their cover, and having the details of the policy they want to purchase clearly aids in that process.”
 
GoCompare also tries to steer away from ‘cheap deals that don’t offer the features consumers really need’, according to its travel insurance spokesperson Caroline Lloyd. The website covers a wide range of customer needs, and keeps its service relevant and streamlined by working closely and regularly with its partners and ‘turning away low-quality products that may not necessarily benefit our customers’, said Lloyd. Cover or price 1
 
But such openess and focus on meeting customers’ needs hasn’t always been apparent in the UK insurance aggregator market. A thematic review called Price Comparison Websites (PCWs) in the UK general insurance sector, published in 2014 by the Financial Conduct Authority (FCA), the UK’s regulator for insurance products (motor, travel and home), found that some aggregator sites have not been offering consumers the type of information that will help them make an informed decision on the type of insurance they need to buy. The survey, which took in data from 50 participants in the UK, included 14 comparison websites (stated to be 90 per cent of the UK market), and was conducted to find out whether ‘their rapid growth in popularity has not come at the expense of transparency and fairness.’2.
 
Through the review, the regulator discovered that ‘some price comparison websites operating in the general insurance sector are failing to meet consumers’ expectations of them and, in some cases, to fully implement its guidance published in 2011’. The FCA was mainly ‘concerned that consumers’ focus on headline price and brand when using PCWs could distract from crucial product features such as policy coverage and terms’, and that ‘consumers may be buying products without understanding key features such as level of cover or excess levels’2. 
 
As the FCA reports on its website, one of the key issues identified was ‘the expectation gap’, whereby ‘people believe they are getting a good deal because they are saving money initially, only to find they are not covered as comprehensively as they thought when they make a claim’3.  Carlo Palmieri, managing director of CP Consulting, a London-based consulting and market research company that specialises in financial services – with a particular focus on insurance – said: “Aggregators in the UK have enabled a significant reduction in the average price of travel insurance, which, at least in the beginning, was beneficial to consumers.”
 
What’s more, according to Ian Hughes, CEO of Consumer Intelligence, which provides market and consumer information and data to the financial services sector across the world, insurers have been aware ‘that the insurer in the top position on the PCW gets about 50 per cent of all sales’, and many insurers have employed a variety of what Hughes called ‘tricks’ to get in to the top position. “So,” he explained, “a travel insurer could, for instance, provide travel insurance but charge a £1,000 excess, which would reduce claims and, therefore, the price. We see that a lot on car insurance.”
 
Palmieri elaborated: “As the competition got more intense, in order to appear at the top of the list, travel insurers adopted two tactics: Exclusion of greater groups of ‘riskier’ consumers (e.g. older consumers or consumers with pre-existing pathologies) and a reduction of covers (stricter exclusions for dangerous activities and sports, deductibles and limits).” This can be problematic in both cases, because, as Palmieri explained: “Some consumers may only find this out when it’s too late, e.g. when they claim, creating potentially serious reputation problems to the industry in the medium term.”
 
Shifting from price to cover
MoneySuperMarket, which provides quotes for most travellers, including those over the age of 65, those with pre-existing medical conditions and those planning on taking part in winter sports, is one of the aggregators for whom not many changes were needed following the FCA review in 2014 – or, as Zena Carter put it: “Given the unique relationship we have with customers and travel insurers, MoneySuperMarket was in a good position at the time of the thematic review and was already working on including some improvements identified.” Following the review, though, the FCA asked some PCWs to take action on specific areas where it was identified that they were not meeting the required standards. Shifting the focus from price to cover was a primary concern.
People believe they are getting a good deal because they are saving money initially, only to find they are not covered as comprehensively as they thought when they make a claim
“Each aggregator has taken a different approach to the FCA compliance,” said Ian Hughes, who has found that while some have ‘moved a long way to meeting the new regulatory requirements’, others haven’t been quite so proactive. “It’s all quite theoretical at the moment,” he said, adding that, other than the required shift of focus from price to cover, recent FCA changes have resulted in, for example, movement towards service and opinion. “Many [aggregators] have started bringing in customer satisfaction scores and claims satisfaction scores,” he said. “Compare the Market, for instance, like GoCompare in having Defaqto ratings on its site4. Others are looking to give away free gifts to try and encourage people to switch with them.”
 
A global comparison
According to Palmieri, the UK is ‘still the most developed market in Europe for travel insurance both for direct distribution and for importance and usage of aggregators’. However, there are other countries, such as Germany and the Netherlands, where travel insurance products are also popularly purchased through PCWs. 
Within Europe, Palmieri said, the travel insurance comparison market is ‘dominated by ‘generalist’ aggregators, which operate with an umbrella model across multiple types of insurance and non-insurance products’. The importance of insurance aggregators, their position within the global marketplace, and what they have to offer, varies widely from country to country. What’s more, he explained, major aggregator markets such as the Netherlands, Spain and Germany are known for having an ‘extremely concentrated market’, dominated by one or two players, as opposed to France and the UK, where the market is more fragmented.
 
To highlight these vast differences within Europe, Palmieri compared it to the UK, where, for example, MoneySuperMarket compares ‘over 265 policies from 40 providers’. Over in Germany, conversely, ‘Check24.de, which offers travel insurance price comparison services, compares the offers of seven providers’, while the market in France generally lacks a travel price comparison – here, insurance aggregator sites such as LesFurets.com and leLynx.fr ‘do not mention travel insurance among their product offering’. Over in Italy – where, according to Palmieri, the aggregator market is not very developed and cover is amongst the most expensive in Europe – rather than offering a comparison, aggregators ‘tend to provide consumers with the list of insurers they partner with and then operate on a lead-generation basis with multiple providers or one provider’.
Many UK aggregators have evolved to become more in tune with the needs of their customers
Although other European aggregator sites tend to focus on price, just as the UK has, Palmieri has seen some that have developed features and filtering criteria that reflect important covers and deductibles, enabling consumers to ‘quickly filter by price and features’. Over in the US, Squaremouth, InsureMyTrip and Travelinsurance.com dominate the travel insurance aggregator world, according to a US Travel Insurance Association (UStiA) survey. Of the US$1.9 billion spent by Americans on travel insurance in 2012, 12 per cent of travel insurance sales went through a combination of internet aggregators, direct to consumer channels and other brokers5. This figure represented a 38-per-cent growth over the percentage of sales in 2010, said Rachael Taft, content manager at Squaremouth, a site that prides itself on catering to its customers by translating legal language into layman’s terms. According to Taft, the site has done this so successfully that only three per cent of its sales are made by phone.
 
In the US, the majority of travel insurance bought by consumers is focused on trip cancellation coverage, which, as Taft pointed out, is typically more expensive than the medical insurance policies consumers tend to favour in the UK. Travel insurance is generally less commonplace in the US because ‘Americans typically do not travel internationally as extensively as Europeans’, said Taft, adding that, compared to the US, the UK’s market is therefore seen as more mature and more commoditised.cover or price 2
 
Comparison sites are a fairly recent concept, and for experts such as Hughes it’s also too early to draw any conclusions about the development of aggregators around the world. “Price comparison has not taken off in other countries the way it has in the UK,” he told ITIJ, adding that there are many other factors at play that influence their development in each country. “For instance,” he said, “some countries in Europe force all policies to renew on a single day every year, which means there is a lack of competition within that market. This massively disadvantages consumers in those countries.”
 
A year on
Back in the UK, the situation has been varied since the FCA’s request that some aggregators adopt changes to their approaches, back in 2014. “We absolutely agree that the output from the thematic review is in the consumer’s benefit and always welcome anything that helps us improve the experience for our customers,” said Zena Carter, explaining that MoneySuperMarket has invested ‘substantially’ in ways to help people find the appropriate policy for their needs. This, she explained, includes the ability to filter by different policy features to ensure a customer’s cover is as comprehensive as they need it to be. “We have also increased the range of cover that a customer can choose for baggage and cancellation,” she said, “so those who want higher amounts have options that suit their needs.” In addition, since the guidance in 2014, the company has made changes around what Carter referred to as ‘softening messages to its customers’, with a focus on more detail rather than ‘buy now’. “So consumers understand there is no commitment at earlier stages of the customer journey,” she said.
Each aggregator has taken a different approach to the FCA compliance
In terms of the effects of recent FCA regulatory changes on overall UK aggregator popularity, experts such as Palmieri and Hughes have witnessed no significant change yet, and both have argued that it would be too early to draw any long-term conclusions since the changes were only requested last year. Still, some positive results have been witnessed. “[Since the new guidance] PCWs are now beginning to get wise and are allowing sortation on different elements,” said Hughes. “The new FCA regulatory changes also mean that aggregators can’t simply rely on having the same price [and cover options] as all their competitors, so they are all looking for ways to differentiate themselves and make themselves special.” 
 
It’s hard to draw any overall conclusions, but it does seem that a focus on cover rather than price does pay dividends for consumers, and thus for aggregators and insurers. As Caroline Lloyd, whose employer GoCompare prides itself on being ‘the first comparison site to focus on the features of cover rather than just price’, puts it: “[It pays to] continually improve and evolve a company’s products and address the balance between cost-effective and relevant policies.” In fact, according to GoCompare’s own research, a differentiating service such as its new option for medical underwriting – which, Lloyd explained, has been helping customers to declare everything they need to for the underwriters to decide on their cover – has been making a difference to the online experience of up to one in four of its consumers since it was implemented in 2012. And that can only be a good thing, for both the travel insurance sector, which learns more about its customer at the point of sale, and the consumer, who benefits from buying the appropriate product. 
 
Sources and references: 
 
2. On 1 April 2013 the FCA became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA). Its TR14/11 - Price comparison websites in the general insurance sector, was published on 16/07/2014.
 
Sources:
 
 
4. Defaqto is an independent researcher of financial products, focused on providing intelligence to support better decision-making. Through an independent methodology, the company assesses different products including insurance, and awards these products in ratings from one to five stars, allowing customers to assess the position of the product in the market at a glance.