Brought to you by:

UK motor comparison market ‘needs more competition’

The UK Competition and Markets Authority (CMA) has called for tighter regulation of motor insurance comparators.

It says if competition is high in the aggregator market, the benefits “will flow through to retail consumers… but if not, the increased competition among insurance providers on comparators is likely to be associated not with lower consumer prices but with higher commission fees, higher profits, higher levels of advertising and higher premiums”.

The CMA says motor insurance comparators are highly profitable, with operating margins of about 25% and low capital costs. “This indicated that the full benefits of comparator competition might not be passed on to consumers.”

Motor insurers say they must feature on the four main aggregators – Confused, MoneySuperMarket, Comparethemarket and GoCompare – to stay competitive, with some consumer groups accessible only through such channels.

“We did find evidence of competition between comparators for consumers’ attention,” the report says.

“We found comparators invested significantly in advertising, in particular on television, and offered various inducements to retail consumers in the form of free toys or loyalty card points. This indicated extensive rivalry on the retail side of the market.”

The CMA says the power of the four main comparators is restricting entry to new players.

“We found that [supermarket chain] Tesco had scaled back its involvement in the comparator market in the past five years. Tesco and [insurer] Covea SGAM told the CMA advertising costs were a barrier to entry in the market.

“Covea SGAM noted also that the major risk of entry was the difficulty of differentiating its proposition where this could only be achieved on the basis of marketing.”

CMA Deputy Panel Chairman Alasdair Smith says the UK’s comparator market needs to improve.

“They certainly help motorists look for the best deal, and this in turn has led insurers to compete more intensely,” he said. “We want to see an end to clauses that restrict an insurer’s ability to price its products differently on different online channels.

“We expect this to lead to greater competition between price comparison websites.”

The Association of British Insurers has welcomed the CMA’s finding on price clauses.

“We have long argued these clauses, which prevent insurers from offering a cheaper deal to customers through their own website or another comparator, should be banned,” Head of Motor Insurance James Dalton said.

“So consumers should welcome this move, which should provide more options when shopping around.”