Guest blogger Mark Twigg, account director of Cicero Consulting airs concerns with protection comparison sites
However, some of its recent forays in the field of consumer awareness have left me questioning its approach, however well-intentioned it may be.
Take a recent example: “Confused about PPI? Compare products online!” Well, that is at least what the FSA’s latest financial capability newsletter implores us to do. So I did. And I am none the wiser.
That’s not because the FSA has not made a good effort to construct what is a fairly decent comparison site. The functionality and design are pretty impressive but the problem is more fundamental than assessing whether the website’s look and feel meets the consumer-friendly test. The problem is that websites are currently a poor tool to try to encourage informed consumer decisions in the protection market.
The price comparison website is a very useful tool when applied correctly, but its value is rather limited to what might be considered commodity products. That is ‘vanilla’ consumer propositions which offer little scope for product differentiation.
They are more easily understood and allow consumers to make direct comparisons. Investment funds and general insurance products are awash with such online ‘supermarkets’ offering readymade price comparisons in what is becoming a major driving force in the development towards a largely advice-free environment.
The problem with PPI is that is it not a commodity. One policy can differ greatly from another. PPI also competes with other protection products, such as income protection, which may act as good substitutes and offer more comprehensive cover.
Because these alternatives are more complex and may require financial advice, they don’t sit well in this environment, and it therefore suits the providers of web-based information tools to simply ignore that such products exist.
The result is that consumers get only a partial image of what is out there and may make poor decisions believing that those decisions are in fact well-informed.
Given the availability of good value alternative products, one should question whether encouraging consumers to make comparisons between PPI products in isolation from the rest of the protection market delivers consumer value.
Surely, the whole tenor of the ICOB review process is that there is a growing need for the regulator and industry to recognise that protection is not a commodity sale, but is a highly emotive consumer purchase, with a suite of products out there which all seek to meet similar consumer needs and could be seen as direct substitutes.
That is not to say one should construe this as PPI-bashing. PPI is a legitimate part of the protection mix which will no doubt serve some consumers well. But the current balance of the market share suggests that there are factors other than consumer needs which are determining what products people buy.
The sheer dominance of PPI sales illustrates that protection sales are driven mainly by other financial transactions. What we need are consumer information tools which provide a wider, more holistic view of the protection needs of the UK populace.
What the FSA’s new website provides is a perpetuation of a current market failure – directing people towards PPI products rather than seeking to enable consumers to compare across the protection suite.
