Money Matters
Reverse auctions, where bids get successively cheaper, are now being used for everyday purchases – for football tickets, home heating, taxis and, in a first for the industry, car insurance.
With traditional auctions, people wanting to buy something keep bidding higher. With reverse auctions, sellers compete to charge the least, which is particularly attractive for insurance premiums. A report last autumn from the
Financial Conduct Authority found that around six million policyholders pay a high premium for their insurance. If they all paid what is currently the average, they would save a total of £1.2 billion a year.
The company selling car insurance by reverse auction is called honcho. If you request a quote through its app on a mobile phone, it sends your information to insurers and brokers on its panel. The providers who are interested bid increasingly lower until they have all reached their cheapest price. At this point you can choose to accept the offer, ask them to bid again or go elsewhere.
Insurers can see what their competitors are offering and decide when to stop bidding. The process, which is dictated by algorithm and not by a member of staff listening in, goes through three rounds of bidding in real time, which takes just 30 seconds.
Around 30 insurers have signed up with honcho, including well-known names, such as Aviva, Axa and Zurich, and newer providers, among them Brightside, Marmalade and Think Insurance.
Honcho charges them £1 to compete for each customer, which challenges the comparison websites’ charge of around £60 for each policy sold – a cost that can be passed on to customers in the premiums they pay.
You can ask to include legal cover, no-claims-bonus protection, courtesy car or whatever and will be told if the quote excludes them – so be aware that the lowest price is not necessarily the best policy for your needs. Neither can you be certain that the quote will be cheaper than one you could buy from insurers outside the auction.
Honcho particularly targets young drivers, but it is available to all and the company could, if the scheme is successful, eventually expand into house and travel insurance.
Other ways of buying through reverse auctions include advance bookings for taxis, typically for airport journeys. Customers enter their request on an app and the booking is put out to local taxi firms. Drivers might accept low fares if they already have a one-way trip to or from an airport booked and would otherwise make the journey in the opposite direction empty.
Warwickshire County Council runs reverse auctions from time to time, in 0rder to obtain cheaper fuel for residents. Once applicants have signed up, the council puts the package to energy suppliers who bid down to win the business. In an auction last year, the council reckoned that participating households each saved an average £179 a year.
Birmingham City Football Club ran a reverse auction with a twist, for current season hospitality tickets. Sports fans bid their lowest price – even 1p – but win only if theirs was the sole bid at that price. The bid must be unique to win.
With reverse auctions, it does look as though taking a gamble can pay off.