Customer loyalty is rewarded by the FCA

  • Lack of price market creates problem for Moneysupemarket
  • Diversification is the key to its future success

The practice of charging consistently higher rates for customers who stay with the same insurer has sparked controversy for years, not least because it makes little sense to penalize loyalty.

However, too often in the life and health insurance industry, writing new business – and the increased revenue it generates – has taken precedence over the interests of existing clients.

After a long and broad consultation, the Financial Conduct Authority (FCA) has now banned “price walking” and existing customers should now, in theory, be billed at the same rates as those signing new contracts. The new rules also eliminate the long-standing paradox that new business could only be purchased at cheaper rates because some customers, especially the vulnerable and less tech-savvy elderly, were happy to keep paying premiums. higher premiums due to a feeling of confusion about the conditions offered, or a simple lack of practical knowledge of the Internet.

As insurers all face higher reorganization costs and adjustments to their business models, what is unclear is whether price comparison websites have now lost the major point of their business. existence. For companies such as Moneysupermarket (MONY) FCA decision presents management with an uncomfortable dilemma; with fewer incentives to change, how will the business generate the same costs from its lucrative insurance business? The company’s own annual report highlights the heart of the matter: “… the proposed price march ban may remove introductory insurance discounts and increase prices for regular switches.”

“This in turn will reduce one of the triggers for change and the use of price comparison sites, although many other triggers, such as a car purchase, an accident or a penalty, will remain,” a- he declared.

This suggests that management understands that the price change phenomenon is as much the result of pricing weaknesses in the insurance industry as it is a tendency of tech-savvy consumers to take a strictly transactional view of the relationship with their service providers. financial. But he’s been particularly quiet about how he’ll adjust to life without the lucrative commissions insurers paid him for teaser deals. This reluctance is understandable. Insurance accounts for about 50 percent of the company’s annual turnover and the same proportion of its profits.

Therefore, diversification seems to be the only way to go and it is noteworthy that the company seems to be following a strategy of muscle building on other income streams based on commissions. In October, Moneysupermarket bought Quidco for a total of £ 101million, £ 87million in cash advance and £ 14million deferred. The agreement has enabled 4,000 outlets to offer refund services if consumers buy from certain outlets and brands. Another alternative is for the site to become more of an educational one-stop-shop where consumers can educate themselves before making decisions about the change, with the resulting data potentially generating a convenient revenue stream for the business.

Making a good investment decision on Moneysupermarket is not straightforward as the company has also tried to recover from the devastating effects of the pandemic on its travel insurance business. Although slightly higher so far this year, stocks have been volatile and are currently trading at a forward price-to-earnings ratio of 16, similar to levels last seen in 2015.

The company has very little capital, with a loose balance sheet and overall cash flow should recover by the end of next year. But the impression remains that a fully mature market for price comparison has already reaped all the fruits at its fingertips, leaving Moneysupermarket with a long, hard task to regain its equilibrium.

Joseph P. Harris