Before renewing an insurance policy or signing up for a new credit card, it’s a good idea to do your homework. Many people research and obtain quotes from free product comparison websites such as iSelect, Compare the Market, Choosi, Finder, and Canstar. But what does “free” actually mean, and are their recommendations unbiased?
Comparison Sites “Do Not Necessarily Provide Good Advice”
In a report released on 3 August, 2018, by the Productivity Commission, it was revealed that financial services comparison sites “do not necessarily provide good advice” to customers. They operate using different business models, and their accuracy is questionable. The Productivity Commission also noted that the comparison sites are “only as good as the input they use”.
Of particular concern is when comparison sites have a commercial interest in the products it features, such as through ownership or commission structures that allow the sites to benefit from recommending certain products over others, such as with Compare the Market, that is owned by the same holding company as Auto and General Insurance and features many of its products, for example, Budget Direct.
Out of all the providers, Canstar has the broadest amount of personal insurance products and has no history of deceptive behaviour. It is privately owned by shareholders with no links to insurers and the site’s award and review system is made public, and is the most detailed of all providers.
How Do Product Comparison Sites Make Money?
When you buy insurance or other products through comparison sites, either online or over the phone, the insurance company pays an upfront commission to the site, which is usually a percentage of the premium. The comparison site may also receive trail commission if the customer sticks to the same service provider for a period of time.
Meanwhile, other sites such as Canstar and finder.com.au work on a “cost-per-click” model whereby when you click through to the product website, the provider will pay the comparison site a referral fee if they sign you up.
One important point to note is that use of the comparison sites are not “free”. They charge a fee for their service and pass this additional cost on to customers in the form of higher premiums, which can be seen as adding an unnecessary distribution cost to the consumer.
What Does This Mean For Me?
These arrangements mean that if you’re using product comparison sites to do your research, you could only be comparing products from a portion of the market, and only the products from commercially related parties to that particular site. You are also like to be paying a higher premium.
The key is to do your own research and if in doubt, seek the assistance of a qualified broker or finance adviser. Product comparison sites often make their comparisons based on price alone, overlooking other aspects of the products such as features and individual circumstances and suitability. If you need assistance, contact me today.