Old friends in new frocks? MFN clauses in the online hotel booking sector/9

(Previous installments here).

It is not difficult to predict a growing attention by competition enforcers towards vertical restraints involving online platforms active in other industries. In the UK, the Competition Commission found that retail MFNs are very common also in the motor insurance sector, where buying policies online through price comparison websites (PCWs) is increasingly popular. The first PCWs gathered prices visiting private motor insurance (PMI) providers’ websites and extracting information from those pages algorithmically (so called screen-scraping), also despite insurers’ widespread opposition to the practice. With time, PCWs were able to develop stable commercial relationships with PMI providers, who now make available directly to the PCWs detailed information concerning actual premiums and policies.

In order to be survive, PCWs must be attractive to both customers and insurers. To consumers, PCWs offer tools to compare premiums and policies; to insurers, also to niche ones, PCWs offer an appealing shop window where to present their products. In order to attract customers to their platforms, PCWs spend substantial amounts of money in TV advertising, in adverts to Google, etc. When a customer finds a PMI policy which she wishes to buy, she clicks through to the insurer’s website and purchases the desired product. Typically, the PMI provider pays the PCW a fee for every policy purchased (so called cost per acquisition – CPA - fee), which is not based on the actual premium paid by the consumer.

Arguably, thanks to PCWs, consumers face lower search costs, with more switching between PMI providers and more potential savings on insurance premiums. As an OFT study into PCWs indicates, these platforms have been effective in promoting price competition among sellers. Along the same lines, the Competition Commission found that PMI providers are five to ten times more price sensitive when they are selling through PCWs than through different channels. According to recent UK market estimates, about 55 to 60 per cent of new business (i.e. first-time motor insurance purchasers or consumers switching from their previous providers) comes through PCWs, while renewals account for about 59 per cent of all PMI policies sold - which does not mean, however, that in the latter case consumers have not used a PCW: often consumers refer to the price comparison results in order to obtain a cheaper renewal premium from their current providers.

(To be continued)