The regulator has announced that it has launched a thematic review into 14 price comparison websites and a number of insurance providers in an effort to understand whether information is being displayed in a manner that allows consumers to obtain the "fairest deal". It said it is concerned that consumers may be buying less comprehensive insurance cover than they expect as a result of how information is presented on price comparison sites.
The FCA said it would check whether "there is too much of a focus on headline price, and whether consumers may be misled into purchasing products or add-ons which do not meet their needs". It will also review whether businesses involved in the market are putting profit before customers as part of their business model. The regulator is to also analyse whether insurers that own a price comparison website have a conflict of interest and said it would conduct other checks on whether consumers' data is being used appropriately.
“The FCA’s new thematic review is going to focus on motor, travel and home insurance which are compared on and bought via price comparison websites but similar concerns are also being voiced about annuities bought online and, in many respects, these concerns are far more serious," insurance law expert Bruno Geiringer of Pinsent Masons, the law firm behind Out-Law.com, said. "The problems being raised with online annuity brokerages can lead to far greater consumer detriment than is caused by the sale of general insurance products on comparison sites."
The previous City regulator, the Financial Services Authority, launched an investigation into the annuity market in February – a probe continued by the FCA. An annuity is a policy from an insurance company that converts a pension fund, or part of a pension fund, into a regular pension income.
"Online sales of annuities are fraught with danger and could cause huge potential problems for customers if there is no check that the product is right for the customer," Geiringer said. "Another potential risk is where the brokerage simply allows retirees to compare the rates offered by different annuity providers and not offer advice. This is a recipe for disaster."
Geiringer said that there is the potential for "widespread systemic mis-buying" of annuities where the purchasing takes place via a non-advised service. This is because the onus falls on the consumer to determine whether it is appropriate at all for them to take out an annuity and, even if so, to select the right type. Consumers are generally not equipped to make the right choice, he warned.
"Buying an annuity is generally a once-in-a-lifetime event and once the pension pot has been spent, it generally speaking has gone, in return for the promise of regular payments," Geiringer said. "This means all of the pot will usually be wiped out and there is no going back if the wrong annuity is bought. When choosing an annuity, advice is vital as the step is both a complex one and is an important investment decision involving many more factors as well as finding the best annuity rate."
"It will therefore be very interesting to see if the FCA read-across some of the learning from their new thematic review to gain some insight into the annuity online brokerage market," he added.
