Insurance- Comparison Websites

Comparison websites are a good place to begin shopping around, but you must be wise to their limitations.

These companies are not surveying the whole market, but only a limited number of about 50 or so companies. So the best price on a website might not be the very best deal available. For example, best buy tables for motor cover show Hastings Direct to be consistently competitive, but it does not feature on many of the comparison websites.

Some of the best buy savings accounts are offered by offshore banks, which are not governed by the Banking Code, so if something goes awry, you may have no comeback. For example, Icici Bank often tops the best buy tables but is not a member of the Banking Code.

Moneysupermarket.com has since removed all offshore and unregulated companies from its site.

Some companies offer price reductions if you go straight to them, or if you have more than one policy with them. Comparison sites cannot take account of this. It is also vital to ensure you compare like with like. One company may look cheaper, but could be offering very poor cover compared with another, slightly more expensive policy.

The sites also use different questionnaires to calculate premiums. Some are considerably more detailed than others. It is vital customers read all the small print of any contract carefully to ensure they have the cover they need.

"People don't like filling in long questionnaires, so the websites try to keep them as short as possible," says Brian Brown at Defaqto, the product research company. "This means that a lot of assumptions are being made about the kind of product you are looking for. If these assumptions are wrong, and incorrect information is passed on to the insurer, you could have a worst case scenario whereby it is only after you have an accident that you discover you are not covered."

Brown also reckons there are two other potential drawbacks to the continued proliferation of comparison websites. Firstly, lower prices can mean poorer value products. Secondly, he predicts that more companies will follow the lead of the likes of Legal & General and pull out of unprofitable markets in which they can no longer compete; the insurer recently stopped underwriting motor insurance.

"Companies have to play the supermarkets' game. If they don't produce premiums that make it into the top five, then they won't sell any business," says Brown. "This means we will see the increasing development of cheaper products, which cost less but offer fewer benefits. Other companies will simply withdraw, which could lead to less competition and rising prices in the future.(Extract from Daily Telegraph)

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