Consumers who don’t regularly switch their bank accounts, insurance, mortgages, utilities and other services, will often end up paying higher prices than those who regularly change provider; a topic I explored in my last post.
This issue is something that regulators are taking a growing interest in, with the Financial Conduct Authority (FCA) recently discussing the idea of forcing firms to offer a basic savings rate for cash savings products open for longer periods of time, in order to help those consumers who don’t regularly switch their savings provider receive a better deal. The FCA has also raised similar concerns about the general insurance market, and has promised to look into the higher prices paid by those who continually renew their insurance with their existing provider.
While the FCA looks poised to intervene to improve the situation for those consumers who don’t regularly shop around, could there be a market solution to this problem?
A wide variety of price comparison websites already allow consumers to compare and switch between different products and providers across a number of markets, but this still requires consumers to actively visit these websites and go through the process of comparing providers and then switching. For many this proves to be too much hassle, and with dozens of other daily priorities, many of us rarely find the time to switch to different products, even when we know we should!
However, we are starting to see a number of new “auto-switching” services emerge in the energy market. Unlike traditional comparison websites, these services allow consumers to enter the details of their existing energy provider and tariff and then automatically be switched to a better deal found by the auto-switching service.
So could these auto-switching services also work in financial services markets, like those for cash savings and insurance? Potentially, but there are a number of hurdles to overcome.
Electricity and gas are perfectly fungible goods – in other words there is no difference between who you get them from, they are exactly the same regardless of provider. This isn’t true of insurance products, which often have very different levels of coverage and where different providers may also be more or less likely to pay out against a given claim. Savings accounts seem like a better candidate, as in most cases the consumer will simply want the highest interest rate on offer, but similar complications over terms and conditions could also apply.
This isn’t to say that these problems are insurmountable – far from it – but they are important considerations for any firms looking to offer these auto-switching services for FS products. Provided these issues are overcome, and regulators are satisfied that these services deliver good consumer outcomes, it looks like a number of FS markets could be open to disruption by auto-switching services in the near future.
With thanks to my colleague Quentin Mosseray, who alerted me to the blog below.
Auto-switching services are poised to transform the energy market, where price is often fundamental to choosing provider. With consumers’ insurance decisions often influenced by premiums, could auto-switching insurance become the normality?