As insurance giant Direct Line unleashed an advertising assault on internet price comparison sites last week, two of the services – Moneysupermarket.com and Confused.com – were basking in sky-high financial valuations reminiscent of the dot-com boom of 2000.
Direct Line’s campaign threatens to undermine these valuations, casting doubt on the transparency and independence of the online switching sites and suggesting that consumers would be better off contacting providers of home and motor insurance directly.
Over the past eight years, the sites have attracted millions of consumers who have entered their details to find the cheapest deals on products ranging from motor insurance and credit cards to gas and electricity. These price comparison sites have portrayed themselves as fearless consumer champions bringing clarity to confused markets. But many people are unaware that they are profit-making businesses, and assume they offer independent assessments.
Something to bank on
The sites have provided a quick route to massive riches for their founders. Only last week, Moneysupermarket.com’s co-founder, Simon Nixon, bought out the remaining shares from his partner Duncan Cameron giving him 90% control of the business and paving the way for a stock market flotation worth up to £1bn. It is the UK’s largest financial comparison site and last year had a turnover of £100m – up from £68m the year before – with earnings before tax of £30m, up 40%. Meanwhile Confused.com’s owner, Admiral, says it is considering a sale of the business, worth up to £700m, according to reports. Last year, uSwitch was sold to US media company EW Scripps for £210m.
Now Direct Line is attempting to undermine the appeal of the price aggregators. Its television and press advertising campaign compares them to insurance brokers with their “commissions, jargon and forms”. When Direct Line launched in 1985, it transformed the home and motor insurance markets by dealing directly with customers rather than selling via brokers. Its campaign says/ “Unfortunately, the middlemen are back. But this time they’ve gone online, as price comparison sites.” Its parent company Royal Bank of Scotland, which also owns Churchill, Privilege and Tesco Personal Finance, does not allow its brands to appear on any price comparison sites. Co-operative Insurance does not appear on sites and Norwich Union Direct does not appear on Moneysupermarket.com.
The campaign suggests that consumers using price comparison sites could miss out on exclusive offers. It claims consumers are unaware of the way price comparators make their money through commissions, and may be misled into thinking they are truly independent. Additionally, the sites fail to offer comprehensive coverage since not all providers allow their products to be featured in league tables.
Another pressure on the sites is the imminent launch of Tesco into the sector. It is understood to be close to launching its own service called Tescocompare.com. Ironically, this is being done in league with Direct Line’s owner Royal Bank of Scotland. Tesco could provide stiff competition to the established sites given the supermarket chain’s vast marketing firepower and value reputation.
Ringing in the changes
The price comparators’ eye-watering valuations are based on predictions that they will continue growing in coming years, but Direct Line could ruin the party if it manages to sow seeds of doubt about their reliability. Its campaign focuses on insurance, but the broad sweep of its attack could raise questions over the work of comparators in other sectors as well.
Not surprisingly the switching sites have hit back, saying that Direct Line refuses to be listed because it would do so poorly in their league tables. Moneysupermarket.com managing director of insurance services Richard Mason says: “We run comparisons on Direct Line and very rarely does it come out at the top of the table. It is losing market share because people are shopping around.
“It looks a bit desperate. In 1985 when it launched, it was the youthful kid on the block looking to change the world and save consumers money. Now, 22 years later, it is the sort of big, bloated insurer it was fighting against.” Direct Line declined to comment.
Mason denies the claims made by Direct Line’s campaign, saying: “We are not a middle man at all.” He claims the site makes money by providing the companies with “refined internet traffic”. Some providers pay commission on completed transactions, he concedes, but the site cannot in any way promote the high commission payers above any other player since prices from its 60 insurers are displayed automatically and in order. It attracts some 30,000 visitors a day looking for motor insurance, 7,000 for home insurance and 5,000 for travel insurance.
According to Paul Gordon, managing director of financial advertising agency CCHM:Ping, Direct Line appears to have moved away from its original stance of lowest price offers to a “price plus” model focusing on added value benefits and brand reputation. But he says the campaign is factually right. “Direct Line is correct, the sites are brokers, taking commissions from providers. They can’t deny that by any stretch of the imagination. But what is interesting is that the consumer doesn’t see it like that – there is a gap between perception and reality. In reality they are brokers, in perception they are not.”
Gordon thinks the Direct Line campaign gives the comparison sites publicity and shows they have come of age as an important part of the market: “The killer question is: will a greater understanding that the provider pays commission stop their usage? I don’t think it will.”
Consumers’ relaxed attitude to comparators as brokers may come from the fact that the sites do not bump up prices. As Confused.com marketing director Tom Bennett says: “There is no difference in the premium the consumers pay. There is no difference in the price we show to the price the insurer charges.” Bennett claims Confused has about 44% of the online car insurance market, which is about half of the total market. Confused, which spends up to £12m a year on advertising, is about to change the way it charges the companies it lists. Currently they pay a “flat fee” of between £30 and £45 for each referral, depending on the company. In future, companies that cherrypick consumers – providing quotes for only certain types of consumer – will have to pay higher fees than those that provide quotes for everybody.
Cause for confusion
Confused has recently entered the utility comparison market, but it is not recognised by the Energywatch accreditation scheme, which recommends about a dozen switching sites.
One feature of the comparator market is that each site appears to have a different model for charging companies commission or fees, which is somewhat confusing. According to Karen Darby, founder of Simplyswitch.com, comparison sites could be transparent about how they make their listings, and she thinks an accreditation system for financial services, similar to the Energywatch scheme in utilities, would be a good idea. Darby hit the jackpot when she sold Simplyswitch to Daily Mail & General Trust last year for £22m. Curiously, given The Daily Mail’s reputation for editorial integrity, the paper does not mention the fact that Simplyswitch is owned by its parent company in the frequent references it makes to the site in articles.
Darby defends the work of the comparison sites, saying: “They have helped bring competitive products to market that have topped the charts. I set this company up and borrowed £5,000 on my brother’s credit card, because I believed consumers deserved a better deal.”
Research by Direct Line shows nearly two-fifths of users do not realise the sites receive commissions from insurers, with some assuming they are free services and others thinking they are funded by advertising. When they see the inflated valuations commanded by the switching sites, such people may wonder how the new class of online oligarchs got so rich.