ONLINE comparison websites are booming, but the consumer watchdog is urging people to be on the lookout for dodgy operators.
In a major new report into the comparison website market, the Australian Competition and Consumer Commission has highlighted concerns around lack of transparency and potentially misleading conduct by some sites.
ACCC deputy chair Delia Rickard told news.com.au the most common issues with comparison websites were misrepresenting the percentage of the market being compared, and overstating the amount of savings consumers could make.
‘Comparison websites have great potential to help you compare complex products,’ she said. ‘What we’re concerned to ensure is the integrity of these sites so consumers have a proper sense of what’s being compared, the percentage of the market being compared, and that comparisons are accurate.’
The ACCC has previously taken court action against a number of comparison websites.
In 2012, EnergyWatch was made to pay more than $2 million in penalties for misleading advertising, while Compare the Market paid $10,200 earlier this year over claims relating to its health insurance comparison service.
That followed action against iSelect in 2007 over misleading claims, in which the watchdog secured court enforceable undertakings to improve its practices.
‘In two of those cases the sites were giving the impression that they compared most or all of the market, when in fact they didn’t,’ Ms Rickard said.
Many consumers are now using comparison websites to research but not necessarily to purchase, which means they were increasingly relying on call centres to close sales.
‘We always have concerns to make sure what’s being said in these call centres is truthful and doesn’t mislead. We see good sites, but we also have concerns about a number of others,’ Ms Rickard said.
She confirmed the ACCC was currently investigating a number of comparison websites.
‘They should be put on notice – give consumers accurate and honest information, and make sure you present the results fairly.’
Most comparison websites are used as marketing vehicles for the service providers, meaning if they don’t pay to be listed, they don’t appear.
One of the ACCC’s concerns, apart from the misrepresentation of the percentage of the market covered, is the presentation of paid or preferred suppliers at the top of results.
‘Where a comparator website makes representations about impartiality, independence or a lack of bias but then recommends results based on preferential relationships, the initial representation is likely to be false or misleading,’ the report says.
According to the ACCC, undisclosed commercial relationships have the potential to:
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Tom Godfrey, spokesman for consumer group Choice, said many comparison websites sought to mislead consumers.
‘A number of them suggest they compare the entire market but in fact they compare a relatively small segment,’ he said.
‘The best thing for consumers to do is always look at the exclusions and the way they’re set up – often they will have waivers buried deep in the site somewhere.’
He said regardless of the URL or branding, commercial comparison sites often only give a fraction of the options available.
‘You’ve got to look who’s behind these sites. If the company is not independent, you’ve got to ask why they’re doing it, and often it’s to push their own products and services.’
WHY WE NEED THEM
It’s not all negative, however. The ACCC’s report makes it clear that comparator websites can play a vital role in cutting through information overload.
When faced with too much information, consumers can experience ‘choice paralysis’ and ultimately choose no decision, or a poor decision, according to the ACCC.
Many service providers in sectors such as insurance, energy and telecommunications face similar input costs, meaning they have limited scope for product differentiation.
‘Where businesses are subject to these factors, which may be beyond their control, they may choose to structure their products in a complex manner or provide consumers with large amounts of information as a strategy to minimise customer churn,’ the report says.
For example, the Australian Dental Association, in its submission to the current competition policy review, claimed private health insurers ‘deliberately pitch advertising and various levels of cover to make it difficult for policy holders to compare the levels of cover on offer’.
‘It is not possible to make direct comparison of levels of cover on offer by the 34 private health insurance funds in Australia,’ the ADA wrote.
Similarly, a 2013 report by the Australian Energy Market Commission on energy switching in NSW found that consumers were confused about their energy plan options and how to get credible information on the subject.
‘There is widespread inertia and disengagement when it comes to investigating energy plans,’ the AEMC said. ‘This situation is compounded by the complexity of the different options available, which saps consumers’ motivation.’
Other key benefits identified by the ACCC include lowering barriers to entry for small and medium businesses, saving time and effort, facilitating like-for-like comparison, product innovation, and putting downward pressure on prices.
The ACCC says it will soon publish guidance to consumers in the form of practical tips on how to effectively use comparison websites. It will also release industry guidance to site operators and small businesses to help them comply with the law.