It's a good idea to do some homework before renewing your health, life, home or car insurance policies. Many people get a quote from one of the free online insurance comparison websites. But are their recommendations unbiased?
We take a close look at four of Australia's largest online insurance comparison sites to see how they work, and just how much of the market they actually help you compare. All offer health and life insurance comparisons. Three also offer car insurance.
What we found:
- 'Free' comparison sites can earn exorbitant fees per sale from the insurers.
- These fees can make up a sizeable chunk of your total insurance premium.
- Some comparison sites are misleading about how much of the market they compare.
- Some sites are actually owned by the insurance companies they're supposedly comparing.
Prefer unbiased, independent advice? Our expert insurance reports can help you.
Show me the money
When you buy insurance through an online comparison site, the provider may be paying a commission to the site, either as a fixed percentage of the premium, or as a set fee per sale.
The comparison site may also receive trailing commissions from the insurer. They're an additional kick back on anything from 12 months to the whole time you maintain that policy with the provider.
All the sites we looked at divulge how they're paid, but none reveal how much. Health funds Bupa and Medibank Private have both called for more transparency in the fees earned by insurance comparison websites.
"Say you're signing up for a $2000 policy - you don't know that you've just committed $800 for that policy as a charge to the company that put that product on that site,'' says Medibank's managing director, George Savvides.
Cagey on commissions
The comparison sites we spoke to denied commissions are linked with their product recommendations, but the potential for conflicts of interest is still pretty clear.
"Private health insurers pay aggregators commissions when they convert searches into a sale. [That's] an incentive to encourage sales of policies that will generate higher revenue," says Medibank's Victoria Hanlon.
Medibank also says the commissions paid to online comparison sites increase the cost of premiums and quotes. Commissions paid to aggregators are funded from the insurers' advertising budgets, which reportedly rose $90m between 2007 and 2012.
Help for the little guys
The two health fund giants, Bupa and Medibank, earn a combined 60% of the health insurance pie. Online comparison sites can give smaller competitors a foot in the door because of their market clout. iSelect alone sold 20% of health insurance premiums in 2012.
iSelect's Matthew Cuming says the site gives a voice to smaller health funds by baring some of the cost of marketing. NIB's Mark Fitzgibbon agrees they can be a positive force: "Anything that shakes up competition and benefits consumers is good."
But are you getting the full story?
Online comparison sites can be a little vague on facts. ASIC has previously pulled up a selection of sites for misleading conduct because they aren't disclosing exactly how much of the market they actually compare.
They're also selective with recommendations. Apart from Canstar, all the sites we looked at compare policies and provide quotes from a third (or less) of all health insurance providers. The numbers are even fewer for car insurance.
Major insurers sometimes bite back. In 2011, Bupa sought a federal court order to stop iSelect's ads, which were offering $499 to anyone who had to serve a waiting period when switching to a new health insurance policy.
Bupa claimed this was misleading because under Australian law no one has to re-serve waiting periods when they change to an equivalent or lower level of hospital cover.
iSelect hit back saying the law didn't apply to extras cover. Both claims were dismissed. After a court-ordered mediation, iSelect committed to a three-year accurate disclosure order.
Who actually owns the websites?
Because they're for-profit businesses, there's the chance you'll get biased advice based on the ownership structure of these supposedly 'free' comparison sites
Choosi.com.au, the second-most popular site after iSelect, is owned by Hollard Financial Services. It's a major provider of life insurance and distributes seven of the insurance brands available on the site.
Compare the Market is owned by Budget Holdings Limited (BHL). BHL, in turn, owns insurance giant Auto and General, the parent company of brand names like car insurer Budget Direct.
On a shadow shop of car insurance quotes on online comparison websites, we found five out of the six top results on comparethemarket.com.au were Auto and General Insurance policies and quotes.
Sounds a little dodgy, but this may be down to market position, as the top-ranked results were the same on competitor sites iSelect and Canstar.
What does CHOICE do?
We're a not-for-profit organisation funded by our members - we don't receive commissions or fees for advertising. We publish independent, expert reports on:
When we compare insurance, we do it based on value and look at the broadest possible range of products available.
Comparison sites compared
We assessed the top four players using ASIC's guidelines for financial comparison sites. We also used principles developed by consumer groups (including our own) for electricity comparison websites.
We looked at:
- Accuracy: Do they clearly disclose the basis of awards or ratings? Do they include all providers or a warning if not all providers are compared?
- Impartiality: What kind of relationship do they have to the product providers on their site?
- Transparency: Do they disclose links to providers including commissions, referral fees, payments for inclusion in comparisons, and payments for featured products?
What we found
Australia's biggest comparison site is best known for its health insurance comparisons. iSelect.com.au also sells car and life insurance, while sister site InfoChoice is used for comparing credit cards and savings accounts.
- Insurers are listed on the product comparison page.
- You're required to tick a disclaimer saying you understand that iSelect recommends "approved" policies from participating insurers.
- We couldn't locate a disclaimer that all health insurers aren't compared, but there's a note deep in the fine print that not all car insurers are compared.
- iSelect consistently assures us that recommendations are based on consumers' needs, but we were unable to find any more detail on the basis for recommendation of products.
- iSelect was listed on the stock exchange in June 2012. The largest shareholders before the listing were ninemsn and founder Damien Waller.
- Three of the 12 car insurance brand names listed on the site are owned by iSelect.
- They also have their own brand of health insurance, Surepath (not currently available on the site).
- Ten of the 12 car insurance brands are underwritten by the same insurer, Auto and General Insurance Company.
- A "How does iSelect make money?" statement on the site declares iSelect may receive a one-time or recurring fee from providers.
- iSelect says its website and call centre operators are detached from fee arrangements, so commissions don't influence recommendations.
- Upfront commissions never exceed half of the first year's premium for health.
- Trailing commissions don't exceed 6.5% of the premium collected over the life of the product.
Compare the Market
A newer player on the Australian market, comparethemarket.com.au is known for that quirky "compare the meerkat" TV campaign, which made it the number one car insurance comparison site in the UK. The site compares health, car, life, and travel insurance.
- Insurance providers are listed under "who we compare". There are nine out of a possible 36 health insurance funds listed and nine car insurers.
- The site notes several times that they don't compare every product in the market.
- We're told the top results for car insurance are based on price, but no other basis for recommendations is disclosed.
- Owned by Budget Holdings Limited who also own insurance underwriting giants Auto and General, including brand names such as Budget Direct.
- Six of the nine car insurance providers are underwritten by sister organisation Auto and General Insurance.
- Two of the 21 travel insurance brands compared, Budget Direct and 1st For Women, are owned by Auto and General Services (AGS).
- The fine print on the website discloses that a fee is earned for each policy purchased as a result of the use of the site.
- It also notes that AGS earns a fee if you purchase the Auto and General insurance brands.
- Compare the Market declined to comment for this story.
The second most popular site after iSelect, choosi.com.au offers comparisons for health, life, funeral and pet insurance.
- A list of providers for each product is accessible from the homepage.
- Compares seven out of a possible 36 health insurance products.
- The fine print on the bottom of the homepage states that Choosi does not provide information or offer cover for all products available on the market.
- There is a customer rating section on the site, but it's not clear if this customer rating influences the recommended products.
- The top products as rated by customers for life, income and funeral insurance are mainly Hollard Financial Services brands.
- Owned by Hollard Financial Services, which is the distributor of seven of the funeral, pet, life, and income protection insurance brands available on the site.
- You can only obtain quotes and purchase policies for brands listed as "products available through us".
- With the exception of health insurance, all of these are Hollard brands.
- The fine print at the bottom of the homepage declares Choosi's links to Hollard Financial Services.
- Choosi's "About Us" page advises that Choosi is paid a commission for products bought through Choosi.
- They also note "Choosi isn't an insurer" (it's just owned by an insurer).
- They say: "Choosi does not purport to compare the entire market and makes the range of insurance brands available very clear to consumers. Choosi is continually exploring opportunities to provide additional insurance brands."
Canstar.com.au provides a comparison of most personal insurance products with a star ratings system for recommendations.
- Canstar includes the broadest range of insurers out of the comparison sites reviewed, with 20 out of the 24 open health insurance funds and 42 car insurance brands.
- The methodology for their star rating systems is clearly disclosed on their site.
- Canstar is privately owned by shareholders with no links to insurers.
- Insurers that have received a five star rating from Canstar can pay to use the Canstar name and award in their marketing.
- Receives fees for advertising on its site and for referrals to some provider sites.
- Canstar says: "Canstar list for comparison as much of the market as it is practically possible to do, irrespective of whether we receive fees for that product or not."