Shopping online is a perfectly acceptable way of getting what you want. But should you be doing that for your financial and risk products?
Financial price comparison websites have changed the way in which consumers evaluate, apply for and consume financial products. It means consumers no longer need to rely solely on brokers to peruse various products’ paperwork and decide on the best outcome. Instead, they can shop around online, enabling them to compare prices, benefits, excesses and costs without having to speak to a person. Applying online can be easy.
Many financial comparison sites have sprung up in recent years in South Africa, including hippo.co.za, fincheck.co.za, justmoney.co.za, compareguru.co.za and thinkmoney.co.za – to name but a few.
A lot of them have modeled themselves on British-based websites such as Confused.com, GoCompare, Compare the Market, MoneySuperMarket and uSwitch. Just like the UK versions, they allow you to compare insurance, banking and debt products. But so far, the South African versions haven’t quite matched the scale and size of these UK websites. So, are price comparison websites all they appear to be?
Do they survey the entire market?
The short answer is ‘no’. A few price comparison websites have started out with the noble intention of listing all of the products available in the marketplace, but they have encountered some challenges – often through no fault of their own.
Few banks and insurance providers feel comfortable with having their rates and services judged against those of their competitors, believing that this could result in a price war which will inevitably drive prices down. So, if they do find their information on these comparison sites, they may fight long and hard to ensure that they are not listed on them.
But sometimes, leaving out certain providers is deliberate. Some price comparison websites only list products that they have an affiliation with. This means that if a bank, insurance company or loan provider wants to have their product featured on a site they would have to pay for the pleasure in some way.
Price comparison website Hippo, for example, partners with several companies that fit within their five product categories, which include insurance (such as buildings cover, car, pet and legal insurance), health insurance (medical aid and gap cover), money products such as personal loans and savings products, and travel products which include flights and accommodation through the likes of TravelStart.com and Booking.com.
How do they make their money?
Price comparison websites make money in a variety of ways, but they typically earn through ‘lead generation’. That means that for every person who uses their website to click through to a service provider from whom they make a purchase, the price comparison website gets a kickback in return.
This may sound like a conflict of interest and consumers should be forgiven for feeling that it is, but this is a perfectly legitimate way to do business. It’s not illegal. Sites like Hippo also comply with various pieces of legislation such as POPI (Protection of Personal Information Act).
But the concept is still flawed, and this is because instead of providing a holistic view of the market, consumers making use of these sites are only presented with the ‘partners’ that have joined forces with such sites. This means a whole host of companies that may have cheaper or even better terms and conditions are omitted from the selection that the consumer can choose from. That’s not to say that the companies that are on the current platforms are not competent or good providers. Some price comparison websites have also gone out of their way to ensure that the companies they deal with are above board.
“In the past we had many partners across the verticals, but we felt some customers got overwhelmed by choice. So we had to choose how many to list and how to vet them,” explains Vera Nagetegaal, executive head of Hippo. “Ultimately you want customers to have trust in your website. We don’t have all the insurance providers and banks – it’s not possible. But we encourage our customers to do their homework and if they can’t find what they want on our site, they should carry on. We track [the performance of] our partners on a quarterly basis and decide whether to keep a partner based on the results.”
Are they meeting consumers’ expectations?
This is where things get a bit tricky. Providers in the UK have certainly been found to be lacking. Back in 2014, the Financial Conduct Authority (FCA) in the UK found that price comparison websites didn’t meet consumers’ expectations in providing them with appropriate information.
The FCA found that these sites were failing to provide clear information that would help consumers make informed decisions. It meant that consumers were buying products without a genuine understanding of what they were getting themselves into. They didn’t, for example, understand the policies and the excess levels.
Here in South Africa there doesn’t appear to have been a similar study conducted. It is important therefore, that consumers do their own homework and research into these price comparison websites to ensure that they are being presented with all the facts and that the information is up to date. Call the product provider directly if you are unsure of a particular offer.
As some providers are reluctant to be featured on such sites, the onus is on the financial price comparison site to update its records as the provider might not provide such information so readily. With this in mind, it’s vital for consumers to double-check prices, as well as terms and conditions. “It’s so important to get facts straight before you commit to purchases. People need to go out and compare products and find out what’s included in the policy. Sometimes customers think they are covered for an event and then find they are not,” says Hippo’s Nagetegaal.
Will they replace brokers?
At this stage it’s hard to say whether South African price comparison websites will replace brokers altogether. They are still very much in their infancy when compared to their British counterparts. What’s more, they offer a limited scope of the financial product landscape, particularly if they only feature their partners’ products.
Hippo doesn’t profess to be a broker, but it believes that price comparison websites do have a place in the chain and that there’s room for improvement. “Our customers have more knowledge than they did before. We need to move faster and develop our tech faster. We also do not underestimate the value of startups and their processes and we’re always keen to look at the next big partner and product line,” says Nagetegaal.
This article first appeared in City Press.