Are you overpaying for your Kaa insurance?
We can help you escape the pricing trap…

weSwitch4u
Jan, 2019

Trying to invoke an emotion when selling a product or service is now so common place, that for us here at WeSwitch4u, trying to communicate the sincerity of what we are trying to do (our hopes and ambitions) is going to be rather hard. This is especially true when we are determined to do things differently in a market that is the definition of opaque, but we’ll give it a shot none-the-less.

By the end of this article we hope we can prove to you why we are different from other firms, giving you actual reasons as to why we not only care about our customers, but why we believe we are selling more than just a handy service. We want to be a vehicle for change in a market that is desperately in need of it.

As we have touched on in our launch article, WeSwitch4u has an innovative social benefit component; we don’t have greedy investors to feed and we are setup with no conflict of interests. It’s that last part that we think is hugely important for customers, and one that we’d like to expand on in this article.

In the last two decades, price comparison websites (PCW) have changed the way the majority of us purchase Insurance, Energy and a whole host of other services. Unfortunately it’s been far from beneficial for the consumer. There are many reasons why this is the case, but these all stem from one fundamental aspect of comparison sites… a conflict of interests between the customer and the supplier.

On the face of it the PCW allows customers to more easily compare the available insurance or energy providers, thereby assisting open competition and driving down prices. What many people may not know (for insurance at least), is that as part of the terms and conditions of being listed on a comparison site, a supplier cannot offer their policy directly to the customer for less than they do on the PCW. These clauses are known as ‘most favoured nation (MFN)’ clauses and come in two types, wide and narrow. A wide MFN is one where the insurance company that is being listed on a PCW is not able to offer a lower price for the policy anywhere else. A narrow MFN is one where the insurance company listing on the PCW is not able to offer a lower price directly, but prices can be lower on other PCWs. Both types of MFNs have existed in the insurance market in the past, but in 2014 the Competition Markets Authority (CMA) sought it necessary to ban wide MFNs in the car insurance market.

Narrow MFNs are still very much in place, which means if you are buying car insurance from a provider that chooses to list itself on any of the main PCWs, bizarrely the most expensive place to buy that policy would be direct from that insurers website. The result of all this is that whether you go to the comparison site or not, we are all paying the ‘PCW surcharge’ in our car insurance premiums.

Enough waffle, tell me how much I can save!

Some might argue that the increased competition between insurance companies facilitated by PCWs would offset any commission the comparison sites add onto the cost of all our policies. Well, that could be a flawed argument too. Some of the biggest comparison sites out there are owned by insurance companies themselves. Confused.com is owned by Admiral for example, and Aviva are the second largest shareholder in MoneySuperMarket. The effect of this ownership interest is that these sites will often distort the way information is presented to you, in order to coerce you into a purchase which might not be the most suitable.

In 2015, Dr. David Ronayne, a professor of economics at Oxford University published a paper on the effects of Price Comparison Websites on the price of services like insurance. The short conclusion to his paper was that unless a customer checks all PCWs, the customer is likely to be worse off as a result of PCWs than otherwise. Furthermore, the greater the number of PCWs the worse off the customers are on average, unless of course they check them all. In his analysis he makes various assumptions based on real world observations of the market. One of those assumptions is that PCWs are profit maximising firms, as with most firms who operate in the private sector, this is the case. He also mentions that ‘meta-sites’ that essentially compare comparison sites, like those of kayak.com and trivago, also have the effect of inflating prices and making the customer worse off.

So what can we make of all this?

Despite the UK enjoying some of the lowest energy prices in Europe, it still feels as though exploitation of customers is rife in the insurance and energy sector. We can’t help but feel that comparison sites are largely to blame. The introduction of new auto-switching services like WeSwitch4u and weflip might sound like a revolutionary step, but there needs to be more behind the service than just auto-switching.

Firstly, if a firm operates within a construct where there are clear conflicts of interest (like those of the comparison sites) then its likely these types of firms will simply push the cost of energy or insurance up for all consumers. The commissions earned in the process of comparing and/or switching is added to the prices of all the goods and services they compare, whether you buy them direct or not.

Secondly, if the firm acts as another fee generator in the process of selling the service to the end consumer, they are also adding to the overall cost of that service, even if they don’t have a conflict of interest.

Thirdly, if the firm is profit maximising then its goal is not to benefit the consumer, but to generate larger profits by engaging in tactics that quite often will exploit consumers.

So now we’ve highlighted what issues we think plague the insurance and energy market, and result in so many unhappy customers, how do we at WeSwitch4u think we can do better?

Well for one we don’t have a conflict of interest. As opposed to firms who are ‘free’ and then earn a commission, often undisclosed, from the companies they have a partnership with, the result is that you are paying for the service whether you know it or not. When the commission structure isn’t clearly stated it leaves the customer pondering whether the deal they have been given is really the one that most suits their needs. This is especially the case for auto-switching firms who don’t give the customers a chance to authorise a switch proposal, instead requiring them to cancel a switch within the 14 day ‘cooling-off’ period.

Yes WeSwitch4u do charge a fee, but by stating our fee upfront and being transparent about its makeup we encourage a dialogue between the customer and us (and other firms too). This firm-consumer coordination over fees is something that has been proposed as being beneficial for consumers, but unlikely in reality. In fact, when a firm is not a profit-maximising one, firm-consumer fee dialogue is actually quite beneficial for both parties.

Whilst we accept that current auto-switching firms act like ‘meta-sites’ for customers (essentially adding to the cost of energy for everyone), because WeSwitch4u is not based on a structure where we rely on suppliers for commission our structure paves the way for a lower fee mechanism through which energy and insurance can be purchased in the future.

And finally, because we have a significant social benefit component we aren’t focused on maximising profits. Operating in a market where our peers do seek to maximise profits means our service will always be bound by the supply and demand forces of the market. This means we have to be competitive, but given profit maximisation is not our primary objective, customers can be assured our goal is to drive down prices and ultimately transform the market into one where all parties involved operate in a harmonious equilibrium.

As we grow our service, we want to challenge these economic concepts, continually trying to improve the way customers and businesses interact. This is especially important in a market where customers are obligated to purchase a service (in the case of car insurance), or where the demand is almost absolutely inelastic (as with energy). Whatever the next few years has in store, we are convinced that with your support we can transform this market into one which better serves its customers.

WS4U

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