David Prosser's Outlook: A short cut to cheaper deals or a blind alley?

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The Independent Online

It's not difficult to understand why price comparison sites are so popular. Why spend hours on the phone talking to hideous call centres in the vain hope of saving a few quid on your car insurance when you can answer a few questions online and have a computer do all the work for you?

As home broadband penetration has increased, the leading price comparison sites have become hugely valuable. uSwitch, which offers advice on home energy, telecoms and financial services was sold to the US company EW Scripps for £210m in 2006, while Moneysupermarket.com, the biggest financial services site, was valued at more than £760m on flotation a year ago. No wonder that Tesco has big ambitions in the sector. So too does Google.

Most people use these sites when they're presented with renewal notices on their existing policy and a big attraction is that they're free. If the site can find a cheaper quote, all you do to save money is click through to its recommendation. The user pays nothing, the insurer gets the business and pays the site a small fee for referring the customer. Everyone is happy.

But there's a hitch. As the consumer group Which? warns today, the same customer asking three different sites for a quote will more often than not get three different answers. That can't be right – in any given situation there must be one insurer with the cheapest policy and a decent site ought to be able to find it.

The fact that sites produce such variable results gives rise to some cynical thoughts. Could it be that they favour those financial services companies offering the biggest rewards for referrals?

It's certainly the case that certain companies can be disproportionately important to price comparison sites. When Barclays Bank announced earlier this summer it was shutting a subsidiary that offered secured loans, Moneysupermarket.com immediately had to issue a profits warning, such had been its expectations of referral revenues from the unit.

To be clear, there is no evidence that these sites behave with anything other than total integrity. One reason they produce different results is that each site asks its customers slightly different questions about their needs, so the searches conducted are actually based on varying data.

Still, this is an example of where regulation has failed to keep pace with technology. Price comparison sites do the same job as an old-fashioned insurance broker. Yet a broker has to be authorised to do business by City watchdogs and is required to comply with strict rules and regulations. Price comparison sites, on the other hand, are completely unregulated. It's time to address this inconsistency. At the very least, this is an area to which the Financial Services Authority, which has already had one look at the sector, should now return.

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