The widespread use of comparison websites could increase premiums because of the impact on insurers, the Australian Prudential Regulation Authority (APRA) says in its second submission to the Financial System Inquiry.

APRA says that compelling insurers to provide their products through aggregators “is potentially problematic”, as there are no barriers to entry for aggregators and insurers need to be satisfied with the commercial arrangements for each one.

Noting that comparison websites can be a useful “one-stop shop”, APRA says they deliver the best outcome for consumers when price is a key distinguishing feature.

But the value of an insurance product can only be assessed when consumers understand the key benefits and conditions, and if the aggregator focuses on price buyers may not be aware of, nor consider, differences in policies.

“Not only does an over-emphasis on price potentially lead to ill-informed consumer decisions, it also encourages competition by insurers purely on the basis of premium rates rather than the full value of the services they offer,” APRA says.

Since insurance pricing is not an exact science, some insurers will be underpricing some risks while others are overpricing and APRA says the use of aggregators could lead to insurers winning a disproportionate share of business for which they have inadvertently underpriced.

This would affect the profitability of individual companies and the industry as a whole.

The regulator says that if insurers respond to underpricing by raising premiums, consumers will over time lose any benefit.

It urges the inquiry to consider the financial system has already undergone significant change and regulators and their industries need time to implement changes and see the benefits.

APRA says it has substantial independence from government. but this has been eroded by constraints on its prudential, operational and financial flexibility.

“APRA would therefore strongly support mechanisms that move it to a more autonomous budget and funding process.”