Digital Comparison Tools: The CMA's Verdict
The CMA has recently concluded its year-long digital comparison tools (DCT) market study with the publication (on 26 September 2017) of its Final Report. However, this is by no means the end of the story. In addition to making recommendations to DCTs, their users, the regulators (in particular, the FCA), other bodies and the Government, the CMA has launched a competition investigation into the use of wide "most favoured nation" (MFN) contractual arrangements by a DCT in the home insurance sector and will keep other commercial arrangements under review.
The study and main conclusions
The CMA carried out its market study into DCTs or "digital intermediary services used by consumers to compare and potentially to switch or purchase products or services from a range of businesses". It focused on various sectors, including: home insurance; private motor insurance; broadband; energy; credit cards; and flights.
As the CMA has confirmed in its Final Report :
"We have found a mostly positive picture of people's use of and attitudes to DCTs, and the ways DCTs treat people; but also concerns, especially on DCTs' transparency, accessibility and clarity about their use of personal information."
Consequently, the CMA has put forward a series of recommendations. The CMA's main competition concern arising from the market study is the use of wide price parity or MFN clauses which it is now investigating. In addition, certain other contractual arrangements remain "an area of interest to the CMA". These are all discussed in more detail below.
The CMA's approach can be summarised by its Chief Executive's statement that:
"… we have also found that improvements are needed to help people get even better deals. We have set out ground rules for how sites should behave, as well as being clear on how regulators can ensure people have a better experience online."
Consequently, the CMA has published a range of recommendations for DCTs, their users, the regulators and others.
In relation to DCTs, the CMA has set out CARE, its four high-level principles for DCTs to ensure they treat people fairly, namely:
Clear: DCTs should explain their services and how they make money. Thus, consumers need to be given clear information about how much of the market the particular DCT covers, how the DCT's commercial relationships affect the results, how the results are rated and the total costs involved, for example.
Accurate: DCTs should provide information which is "complete, correct, relevant, up-to-date and not misleading".
Responsible: DCTs should comply with all legal obligations in relation to data protection and privacy. They should also explain to consumers about the use of their data and what controls they can exercise over their own data. DCTs should also deal with complaints professionally and fairly.
Easy to use: DCTs should make information easy to find and understand. DCTs also need to comply with their equality law obligations.
In respect of consumers, the CMA has set out various tips to encourage them to get the most out of using DCTs, such as choosing a DCT carefully, using more than one DCT and understanding how the search results have been generated.
With regard to the regulators, the CMA has put forward a number of generic and also sector-specific recommendations in order to make it easier for consumers to use several DCTs (through freeing up more data) and for them to make more accurate comparisons (through improving the effectiveness of quality metrics), for example. The FCA has been specifically asked to consider whether it is possible, and, if so, how, to make it easier for consumers to obtain quotes from multiple DCTs, given the volume of information required in order to obtain a quote. The CMA has also found potential issues concerning the way insurance excesses are presented and has asked the FCA to consider these further.
Most Favoured Nation Investigation and Other Contractual Provisions of Interest
As mentioned above, the CMA has now launched an initial investigation into suspected breaches of Chapter I and Article 101(1) TFEU concerning the use of wide parity or MFN clauses by a comparison website in connection with home insurance. It anticipates a decision as to whether or not to proceed further with the investigation by next March.
The CMA liaised with the FCA to determine which of them was best placed to conduct the competition investigation. Given that the CMA has experience of reviewing MFN clauses (e.g. motor insurance, auction platforms and hotel online booking), the wide range of sectors which may make use of such clauses and the broader policy implications, it was decided that the CMA should investigate. The CMA has reiterated that it will "liaise closely" with the FCA.
A wide MFN arrangement prohibits a supplier selling its product or service at a lower price via its own website or via another DCT. The CMA has emphasised that it has not changed its position, as set out in its private motor insurance investigation, namely that it is concerned that "wide MFNs soften competition between DCTs and between DCTs and competing channels through reducing DCTs' incentives to compete on commissions, to innovate and to enter". In relation to private motor insurance, the CMA had prohibited the use of wide MFNs by large DCTs.
Although its market study has not highlighted any current adverse effects, the CMA has said that it will keep the following contractual arrangements "under review":
narrow MFNs, which require a supplier to set a price on a DCT which is no higher than the price offered via the supplier's own website. The concern is that these could go beyond what is necessary to achieve free-riding and credibility efficiencies.
Agreements between DCTs and suppliers regarding bidding behaviour on paid search platforms. These could potentially impact on consumers' actual purchasing behaviour.
non-solicitation clauses, whereby DCTs are not allowed to contact customers, who have purchased a supplier's product from that DCT, in relation to that particular product for a certain period of time (often covering at least the first renewal period).
The CMA is planning to continue its dialogue to ensure that its recommendations are "understood". It will be liaising closely with the FCA in relation to the MFN investigation. The FCA has itself said that it is actively considering what action to take in response to the CMA's recommendations.
In the meantime, the CMA has advised businesses, whether operating DCTs or supplying products/services via DCTs to review their commercial agreements in light of its comments regarding MFNs, non-solicitation and advertising restriction contractual provisions.