(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. T
he 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)
Video here . Pre-print Paper here (advance article published by JECLAP on the day she died, here ) 2023 Presentation at the "Professo...