Life Insurance Product Comparison Websites – how useful are they?

Product Comparison Websites (PCWs), also known as aggregators, offer a time-efficient and convenient solution for individuals to compare products offered by the whole life insurance market. Consumers use PCWs to help them find the products that best suit their needs of protecting themselves and their families.

From a life company’s perspective, PCWs provide an alternative distribution channel for them to market and sell retail products to individuals who do not seek the services of a financial adviser. Well-known PCWs include iSelect and Compare the Market.

The PCW market is relatively new and constantly changing.  The purpose of a PCW is to use technology to replicate the services of a financial adviser to sell comprehensive life insurance policies to consumers. The key profit driver for PCWs is to generate consumers’ interest to consider and purchase life insurance resulting in commissions for the PCW.

To better understand PCWs, Rice Warner has carried out detailed research of the PCWs on offer and recently released its Life Insurance Aggregator Review 2017. This review compares functionality, product availability and revenue models in the Australian PCW life insurance market.

Rice Warner investigated the remuneration structure of PCWs and found that most receive a similar commission level to qualified financial advisers. Consequently, we would expect them to offer a level of services which closely matches those provided by a financial adviser. The research however indicates that this is unlikely to be the case.

Although several PCWs compare product features, the focus for product differentiation is predominantly price. The inadequate link between price and product features is likely to result in consumers overlooking what is being offered for the price they pay. Without comparing the product features (which can be difficult and time consuming), consumers may rely on product names and prices to differentiate products.

Rice Warner also researched the tools for assisting consumers to calculate their insurance needs and found great variations in the recommendation from each PCW. Financial advisers will provide their clients with a tailored recommendation for insurance needs which is likely to set a level of cover which better meets the needs of the individual.

Another consideration is that consumers tend to need most assistance at the claim stage. However, no information is given by PCWs on how consumers will be helped if they need to lodge claims. This is a clear disadvantage compared with using a financial adviser who is expected to help their clients through the full cycle of the life insurance policy.

A further limitation of PCWs is that they don’t allow comparisons with all types of insurance products. Most PCWs exclude direct insurance policies which have different features such as the ability to obtain cover with reduced underwriting requirements. The other type of cover not considered by PCWs is insurance offered by superannuation funds. Most Australian employees are provided with automatic death and total & permanent disablement (TPD) insurance cover through this channel. Individuals are generally given the option of changing the level of cover to suit their personal needs. Many funds also offer Income Protection cover but Trauma cover is not offered within superannuation.  Overall, insurance in superannuation is an efficient way for most Australians to obtain life insurance. It is usually cheaper than similar cover held outside superannuation and can be obtained without or with minimal underwriting requirements.