Last week the Australian Financial System Inquiry (FSI) flagged measures to expand the use of insurance comparison websites, just as the UK Financial Conduct Authority (FCA) warned such sites often fail consumers.

The divergence of opinion highlights the uncertainty surrounding the sites, which are often referred to as aggregators or comparators. Major Australian insurers face rising pressure to participate in comparison sites by providing data, but they say the sites focus on price to the detriment of other policy features.

In fact, insurers could well feel under siege, with May’s federal budget focusing on a comparison site as a solution to the north Queensland home and strata problems and allocating funds to Treasury to develop a website for the market.

The comparator issue and the reasons for Australian insurers’ reluctance to engage with them was covered in detail in the June/July edition of Insurance News (the magazine).

Suncorp Personal Insurance CEO Mark Milliner suggests there is a conflict in the FSI’s interim report, which recognises the problem of underinsurance while opening debate on increased aggregator involvement.

“This could create contradictory outcomes because, as businesses, aggregators inherently focus on price rather than coverage, which would lead to greater levels of underinsurance in the long run,” he says.

Australia’s personal lines market is heavily concentrated. The top five insurers account for more than 80% of the market and the top two have an estimated 60% share.

Still, a number of new “challenger” insurers have entered the market, including Youi, Hollard and Progressive, and the FSI says few submissions highlight competition concerns.

The FSI’s interim report says that where insurance sector competition is raised, the main issue is aggregator access to information.

The inquiry does not appear to buy the argument that general insurance is a special area unsuited to such comparisons because its products are tailored to individual circumstances.

Other issues raised with the inquiry include the market sensitivity of pricing models and the focus on cost over ensuring adequate coverage.

“These concerns have not prevented aggregators from successfully helping consumers compare products in life insurance, travel insurance and private health insurance markets,” the FSI report says.

Suggested options for improving information-sharing include the use of automated processes to seek quotes from general insurer websites and the development of representative categories based on key consumer characteristics that could be used for comparison.

“An issue with both of these approaches is that different insurance policies generally have different levels of coverage,” the report says.

“Even if consumers are able to compare the premiums of different policies, they may still struggle to compare coverage and overall value.”

Allianz Australia says the proposed use of aggregators to drive down home premiums either misunderstands or ignores key differences between that type of insurance and others for which comparison sites are used.

It notes health insurance pricing is community-rated and claims arising from “poor” risks are pooled among all insurers.

“The fact is, general insurance markets in Australia are highly competitive, and home insurance premiums are now largely risk-priced at the address level,” Allianz spokesman Nicholas Scofield told insuranceNEWS.com.au.

“In these circumstances, aggregators would have no discernible impact on average prices and hence do nothing to address any underlying home insurance affordability issues. Indeed, forcing insurers to allow aggregators access to their systems could have unintended consequences – for example, resulting in higher premiums for some consumers.”

In the UK, insurers’ participation in aggregation sites is not the issue. The FCA estimates about one-third of 26.6 million motor policies written last year were sold through comparators.

But the regulator says that despite regulatory guidelines, the sites still do not always clearly present enough information for consumers to make informed decisions.

Its investigation looked at motor, home and travel insurance.

“Our review found they were not meeting our requirements in delivering fair and consistent outcomes for consumers,” FCA Director of Supervision Clive Adamson says.

“We also found, through our consumer research, that consumers had a number of misconceptions about the services they provided.”

iSelect CEO Alex Stevens says its comparator provides an advice-led service that differs from the UK aggregation model, and most of its business is call-assisted.

“No one wants to see value stripped out of the Australian car and home and contents insurance industry,” he told insuranceNEWS.com.au.

“I really don’t think the UK example of insurance commoditisation that some readily cite as the case against us has any chance of occurring in Australia.”

He says iSelect was pleased to see access to information in car and home and contents insurance receive prominent mentions in the FSI report.

“It’s disappointing that the major Australian car and home and contents insurers don’t participate in online comparison, because it means... consumers are left to sift through masses of confusing information themselves, often resulting in flawed purchase decisions.”

The FSI’s interim report does not include draft recommendations, but its observations reflect its current judgement and aim to draw further input. Priority areas in the final report could change, depending on feedback.

A second round of submissions ends on August 26, and the final report will be released in November.

IAG spokesman Paul Marriage says the company will lodge a second submission and its view on price comparison websites has not changed.

“We don’t believe price comparison sites provide customers with all the information they need to make an informed decision,” he told insuranceNEWS.com.au.

A QBE spokesman says the Australian Prudential Regulation Authority has previously expressed concerns about aggregator websites, and the Australian Securities and Investments Commission has also questioned their accuracy at times.