With their gaudy tv adverts and bombardment of special offers, price comparison sites such as moneysupermarket and have become go-to destinations for people wanting cheaper car and home insurance.
But experts are warning that new rules on insurance pricing could severely dent their appeal, and pose big challenges.
The financial conduct authority has proposed new rules on the way insurers price their products. the main change would be a ban on price walking the practice of increasing premiums for existing customers over time so loyal clients end up paying much more than new ones. under the proposed rules, new and existing customers would be charged the same.
Paul death, head of market intelligence at consultancy oxbow, said the reforms were more wide ranging than insurers had expected: the move to equalise pricing between new business and retention is quite a dramatic shift for the market to deal with.
If the loyalty penalty disappeared there could also be less incentive for people to shop around for their cover.
People will switch less, said rodney bonnard, a partner at ey. those who feel that if they dont switch their price will shoot up, now know that is less likely to happen.
He added that shopping around was time consuming. its not a huge amount of effort but people are busy so i think if theres less of a financial incentive then theyll do that less.
Mohammad khan, of pwc, expected there would be an initial need to keep comparing premiums, as insurers adjust their models, but then it would become less relevant.
After the introduction of these proposals, prices for new insurance policies may rise significantly, he explained. given this, its likely that in the short term, people will continue to rely on price comparison websites. but as time moves on and new business prices and renewal prices are more closely linked, customers may feel that its not worth switching.
Price comparison sites first sprung up in the early 2000s, and since then have become a big part of the way financial services are bought and sold in the uk. the four biggest moneysupermarket, compare the market, confused and gocompare generated combined revenues of more than 800m last year.
Insurance switching is big business for these sites, which charge insurers about 40-50 for each customer they find. last year, it made up almost half of moneysupermarkets 388m of annual turnover.
According to consumer intelligence, a data company, about 75 per cent of motor insurance buyers use a comparison site when their policies come up for renewal. in home insurance the numbers are smaller but growing 64 per cent of consumers use a comparison site, up from 57 per cent a decade ago.
Shares in listed price comparison operators moneysupermarket and goco fell in the days following the fcas announcement, although since then have recovered some of the lost ground.
The fca stressed that its measures would still enable insurance companies to target customers with different prices and product types. this would help to ensure that consumers still have a range of choices in the market, said the fca. it would also mean firms could still offer competitive deals to consumers who shop around and switch regularly.
Matthew crummack, chief executive of gocompare owner goco, stressed there was still an incentive for consumers to seek out better deals: what these proposed rules do is give the consumer transparency on their price with their current insurer...it certainly doesnt give you transparency across all the insurance brands in the market.
He said insurance buyers had become used to shopping around regularly. we still think theres some real opportunity there for people to still save money and be prompted to switch.
Those opportunities are not just at renewal time, pointed out an executive at another price comparison site. often the prompt for people to look for insurance is a big event, such as buying a new house or car. those events will not go away just because the system for setting prices has changed.
Citizens advice, the consumer group behind the super complaint that prompted the fcas action, said easier ways to cancel automatic policy renewals would also force insurers to fight for customers via comparison sites. the new rules will encourage firms to compete on offering the best insurance to customers, rather than compete on who exploits their loyal customers the most, said morgan wild, principal policy manager at citizens advice.
There is a precedent of sorts for the developments in the insurance market. two years ago the uk government introduced price caps for gas and electricity. at the time there were fears the caps would lead to less switching in the energy market.
Malcolm morgan, an analyst at peel hunt, said the opposite happened. active switchers have continued apace, and the audience has increased, he said, pointing out that goco and moneysupermarket had both done well with their energy products since the cap came in.
They launched products that either switch customers automatically between providers so they retain the cheapest deal, or make it very easy for them to do so, and could offer a model for the comparison sites in other markets.
Mr crummack said retention rates on gocos automated energy savings products were more than 90 per cent. the benefit for us is that we keep that customer and look after them, he said.