Take care when using price comparison sites

Price comparison websites have really taken off in a big way. Consumer magazine Which? reckons that around 6.5m of us visited one of the largest three sites - moneysupermarket.com, gocompare.com and confused.com in April alone.

And small wonder. The sales pitch for comparison sites is simple and compelling. Why waste hours phoning round different insurance providers, when you can give your details to a website once and it will instantly find you the cheapest quote?

It's a lucrative business too. The three main sites lavished a cool £40m on advertising in 2007. And although the credit crunch has battered its share price down to about 80p today, at last summer's flotation price of £1.70, Moneysupermarket.com alone was valued at an eye-popping £1bn.

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But are you getting the best deals?

The worry is that, popular as they are, these sites don't always live up to expectations. For example, a recent report by the Financial Services Authority threw up some general criticisms that such sites don't always display information "clearly, fairly and accurately".

Which? has launched its own investigation, covering home contents, car, and travel insurance, plus personal loans and credit cards. The magazine's editor Martyn Hocking concluded that "you might be very confused to find that different sites can give you vastly different quotes and often don't give enough information for you to make an informed choice". He also warned that "cheapest isn't always best it's a false economy if you don't get enough cover for your needs or have to pay a huge excess if you claim".

Specifically, Which? turned up the following problems;

1.The cheapest quotes were different on each site.

2.Different sites sometimes gave different quotes for the same insurer.

3.The cheapest quotes sometime omitted important cover.

4.The level of policy details offered by the sites varied.

The best way to use the sites

So what should you do? Well, the fact that there are some potential pitfalls to using comparison sites shouldn't be a big surprise. The basic rule when buying anything, including insurance, is that there is no free lunch. You need to do some work to get the best deal. But that doesn't mean you should abandon them altogether.

Haggle with your existing insurer: Price comparison sites are a reasonable starting point. But many receive payments from at least some of the companies they recommend, so they will not necessarily be impartial. The Resolution Foundation has criticised some sites for not always being "clear about the financial relationships they have with the companies featured in their search results", reports Which?

So by all means seek a quote from at least one site, but then use it to haggle down the cost of your policy with your existing insurer first. Or, if you are fed up with your existing insurer, then use quotes from these sites as a starting point for direct price negotiations with another insurer, not as a short cut to avoid legwork.

Know exactly what you are paying for: As with builders or electricians, be wary of simply accepting the cheapest insurance quote. It is vital to get the cover right and comparison sites sometimes throw up policies with exclusions you may later regret accepting.

Which? advises particular caution when it comes to buying medical policies especially if you have a pre-existing condition a classic exclusion on many plans. In short, know exactly what you are buying, even if reading the policy document, or asking for an explanation, is a bit tedious.

No site covers every insurer: Although comparison sites are useful in terms of scanning several insurance providers, they don't cover absolutely all of them, so you may miss out on the cheapest quote. Direct Line, for example refuses to be connected.

On top of this, different sites may cover different insurers, hence the problem of different "best quotes". And just to add to the potential confusion, the Which? "top three" face increasing competition from other, newer, sites such as tescocompare.com. Soon we might even need a site that ranks the price comparison sites themselves!

Other tips for lowering the cost of insurance

You can also bring down the cost of insurance whether you use a price comparison site or not. First off, think about how much cover you need or whether you even need it at all. For example, although comprehensive car insurance gives you the greatest peace of mind, if you are a careful driver, live in a safe area and perhaps use a car infrequently, "third party fire and theft" may suffice.

On any policy where you have a low claims history, consider raising the "excess" - the fixed amount of any claim that you are responsible for as this can bring down the premium too.

Also check when it comes to, say, basic travel insurance that you are not already adequately covered by another policy, either through work or perhaps even by your credit card company or bank who may offer basic cover with certain accounts or products.

Once you've got the right policy, it's often best to pay for your cover up front if you have the cash available, as you may be charged interest for paying monthly instead.

Finally, it's rarely worth claiming for small amounts on, say, your car insurance policy. Stump up for a simple repair yourself rather than register a claim with your insurer, which will push up your premium when it comes to renewing the policy.

This article is taken from the weekly Money Sense email. Sign up to Money Sense here.

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