But a new report prepared for the United Kingdom’s Financial Conduct Authority (FCA) highlights potential pitfalls of these online aggregators – with the FCA’s chief executive reportedly telling Parliament many of the websites are “gamed”. An FCA consumer study tells how thinking traps – including framing and herd instinct – can help explain why shoppers don’t always get the best from price comparison websites.
The research highlights some traps and offers tips that may help give more power to shoppers.
1. Do you still need that extra? People who have had a particular level of excess or an insurance add-on in the past find it easier to carry on doing so, rather than questioning or changing their decision, the research says. The research calls it a “non-decision” and tells how it is a symptom of the status quo bias. It can pay to examine add-ons and excesses to see if they still suit your needs.
2. Does a website really know better? When shoppers log on and see numbers already appearing in the online field for an insurance’s excess amount, there can be “an assumption these are the right levels”. A similar dynamic can exist if search results don’t deliver the expected results – users might question if their expectations are wrong rather than the website. Known as authority bias, the research tells how it is the tendency to overvalue the opinion of an “authority” – whereas shoppers may have a better idea of what they want.
3. Beware the green tick If an insurance quote is accompanied by a green tick or a red cross, the icon alone can be used to gauge the quality – “often without looking beyond this surface level”, the research found. It is a type of framing, when the way in which something is presented skews our view of it, or can be symptomatic of limited attention bias. A better idea may be to try to ignore the green tick and see if the policy suits you.
4. “All those people can’t be wrong” Even if shoppers are dissatisfied with using a price comparison website, they may persist because so many others are using the online tools, the research says. A type of herd instinct or social norm, it taps into the idea that crowds are wiser than individuals and that “all those people can’t be wrong”.
5. Is last year’s premium the best benchmark? Shoppers often use the cost of last year’s insurance premium as the reference point when renewing and try to “match” it for the next year, the research says. Paying more than the previous year can feel like a loss and – particularly given our loss aversion tendencies – it says many seek to avoid the loss “at the exclusion of other factors such as the quality or range of cover”. Remembering what’s important to you for an insurance may make more sense.
6. I’ll take the quick option We tend to love immediate gratification – finishing a dreary job quickly so we can go for coffee with friends or play sport. Known as present bias, it can be evident with shoppers using price comparison websites if they chose to “get the job done quickly” rather than fully engaging with the product or its implications.
A personal tale of using a price comparison website
ING senior economist Ian Bright blogged for eZonomics back in 2011 about his personal story of renewing car insurance using a price comparison website.
Bright told how the process took his spare time over several days, reading the small and fine print of contracts. Like the FCA, Bright wrote that the complexity of financial products makes them difficult to compare and states that understanding the terms and conditions is key.
“It is also important to note that cheaper is not always the best in these circumstances,” Bright wrote.