Fairer Finance has warned of a ‘hollowing out’ of private medical insurance (PMI) and protection products to facilitate distribution through price comparison websites.
James Daley, managing director of the consumer group, warned the emergence of comparison sites as the key distribution channel for insurance has led to the stripping down of products where cover levels are cut, excesses increased and administration charges are on the rise.
He added these issues applied across general insurance including private medical insurance (PMI) and protection products.
Daley (pictured) was giving evidence at the House of Lords Financial Services Regulation Committee today as part of its inquiry into consumer insurance regulation.
He warned further regulation may be needed to tackle these problems.
Great and unhealthy price competition
“One of the problems in this market is how distribution has changed over the last 20 years since comparison sites have become the key distribution channel for insurance products,” Daley explained.
“What that has done is create intense price competition and that’s been great for consumers in many ways. That they have the choice of hundreds of insurance brands at the click of a button.”
But Daley added this has also driven unhealthy competition in the market.
“To be able to sell an insurance policy on a comparison site, you need to be in the top five brands,” he continued.
“To do that and stay there, you need to find ways to keep your price competitive in a very competitive market.”
‘Hollowing out’
This has led to a ‘hollowing out’ of products, Daley maintained.
“Insurance policies have continued to evolve with cover levels being cut, with excesses being increased, with administration charges rising,” he continued.
“All of this is happening with policies that are incredibly complicated as a starting point.
“So even if consumers understood what they were covered for, at some point in their life the landscape is constantly shifting in front of their eyes and comparison sites have not really done anything to get to grips with that quality question.”
A further issue, Daley added, is a lack of any ratings system to help consumers understand what they are buying and the comprehensiveness of their cover and who delivers a good experience at claims stage.
“Of course that’s the thing that really matters because insurance is nothing more than a promise on a piece of paper,” Daley continued.
“So when you buy it, you need to be able to understand who is going to keep those promised and ultimately meet your expectations.”
Wreaking havoc
Daley further accused the market of wreaking havoc with the quality of products.
“There is a huge variation in terms of the quality of claims experience out there,” Daley continued.
“Consumers don’t really have an easy way of understanding which firms are doing a good job until they learn the hard way.
“And they are also really struggling to understand what is included in their policies and what isn’t.”
Consumer Duty and further regulation
And while Consumer Duty has a role to play, more regulation may be needed, Daley said.
“The regulation that is there has the ability to improve standards and fix some of these problems,” he said.
“Certainly the Consumer Duty sets a much higher bar than the industry is operating to.
“But I think there is also the need for further prescriptive regulation to look at some minimum standards and some standardisation of certain concepts in this market so that consumers have a better chance of buying products that meet their needs and that there is proper competition on claims and service in the market.”
Consumers ‘blissfully ignorant’
Asked subsequently were these issues the preserve of motor and home insurance, Daley’s response was unequivocal.
“We feel strongly that these problems exist in all general insurance markets,” he said.
“In fact, where consumers buy direct or through price comparison sites, that can be extended to car, to pet, to private medical insurance, to protection products.
“These are all products with significant complexity where consumers don’t understand what they’re buying and many of them are blissfully ignorant.”