Mar 27, 2012 2 min read

Assumptions and Transparency

I’ve commented in previous posts on the ethical implications of how price comparison websites balance the questions they ask about you, with the assumptions they make about you. This issue has been in the media spotlight again recently.

Which? published a report last week about the issue and voiced concern that customers weren’t being treated fairly. The Financial Services Authority (FSA) said the report echoed some of its concerns about price comparison websites (also known as aggregators). Here’s some of what the Which? spokesperson had to say:

“Our research shows you will often get very cheap looking quotes from a price comparison website. When you click through to buy the insurance, you will get a far higher price from the insurer.” [He went on to say] that some car insurance searches featured pre-selected boxes, to make a quote look cheaper, but this figure went up when the search was personalised with the insurer.
“They will assume that your car is always parked on the drive or in a locked garage. If you park on the street, when you go to click through to the insurer you will get a far higher quote than you would have done on that comparison website.”

Two factors underlie an aggregator’s approach to assumptions. On the one hand, they know that customers don’t like to answer page after page of questions, so an aggregator who keeps questions to a minimum will draw in more customers and earn more from click throughs. On the other hand, customers are also attracted to aggregators who offer quotes from as many insurers as possible, which then leads to greater variation in the underwriting information sought by insurers.

Assumptions are a way out of this conundrum, but a far from perfect one. An insurer wants them to be set so as to keep their quote low, as the above parking example illustrates. This pushes their name towards the top of the quote screen. For the consumer, assumptions tilted overly towards the interests of the insurer result in initial quotes that bear little resemblance to the final premium sought by the insurer. All too often, those assumptions are difficult to find.

I remember looking on an aggregator last year for household insurance, finding a good quote from a leading banking group and, on speaking with them about confirming their quote, being more than a little surprised to find my initial quote increasing by more than 10% just because I had three children (even though cover was standard, not AD). Rather than click with the mouse, I went clunk with the phone.

Aggregators are not some form of neutral, technological link between consumers and the market place. They have significant business relationships with both insurers and brokers. As such, they have just as much need for a conflict management policy as any other service provider in the market.

That need is only going to get bigger. With the Consumer Insurance (Disclosure and Representations) Act 2012 now passed into law, insurers will be looking more closely than ever at what they want to ask and when it is in their interests to ask it. Aggregators need to become a lot more transparent about the assumptions they use, when they’re made and the implications of each for the customer, otherwise customer satisfaction with their service will continue to be eroded.

Duncan Minty
Duncan Minty
Duncan has been researching and writing about ethics in insurance for over 20 years. As a Chartered Insurance Practitioner, he combines market knowledge with a strong and independent radar on ethics.
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