Are you footing the bill for cash others save by switching energy suppliers?
THE energy comparison website industry is a ‘ parasite market’ that adds £ 100 million a year to the gas and electricity bills paid by households who rarely even switch to the best deals, research by academics has concluded. A University of Leeds study has discovered that energy suppliers typically hand over at least £25 in commission to comparison websites each time a customer switches to a new deal.
However, it is not savvy shoppers using websites such as Compare the Market, Go Compare, Uswitch and MoneySuperMarket who pick up the hefty bill.
Instead, the cost is factored into the prices energy companies charge for using gas and electricity.
That means the worst-hit are those who rarely switch and end up on the most expensive gas or electric offers, where energy companies make the most money.
Typically, these customers tend to be busy families, the elderly and vulnerable customers, such as those who do not have access to the internet.
The study calculates this £25 commission payment adds up to at least £100 million a year across the industry.
If that cost was instead used to cut bills, it could deliver savings of £12.50 for each consumer stuck on a default tariff for three years or more, according to the study published in international industry title Energy Policy. Last week industry regulator Ofgem announced it would cut the default duel-fuel energy tariffs from October in a bid to ensure the average home pays no more than £1,042 a year on their energy bill.
‘The most competitive deal may be hidden’
Miklos Antal, author of the ‘Parasite market’ study on comparison websites and research fellow at the University of Leeds, said: ‘ The most vulnerable pick up the commission cost and this reduces overall consumer welfare – and so a parasite market is created.
‘The price comparison websites are reducing the number of people who are on good tariffs because the commission costs are being added to the bill paid by the majority not using such a switching service.’
It is estimated that about a third of households regularly use comparison websites.
But the rest of us – as many as 20 million – bear the brunt of this commission cost as we are on less competitive deals where it is easier to sneak on the extra costs.
Antal says: ‘Another finding we made is that it is usually the suppliers that pay commission that are placed mostly highly on the best buy lists.
‘This means that the most competitive deal in the entire market may not be promoted and is hidden.’
Uswitch users must tap on a ‘filter’ box on the main website page and choose ‘include plans that require switching directly through the supplier’ rather than accepting the default setting of ‘only show plans Uswitch can help me switch to’.
This is the only way you can view a full comprehensive list of energy suppliers – and not just energy suppliers willing to pay out commission. James Daley, founder of consumer website Fairer Finance, says: ‘There is certainly a problem with transparency in the comparison website market. They are big on brand promotion but should be more open about how much they pay utility providers for promoting their services.’
The use of friendly looking characters such as Compare The Market’s meerkat Aleksandr Orlov and Go Compare’s opera singer Gio Compario to push comparison websites also helps drive people to comparison sites. Such advert i sing campaigns do not come cheap – and are believed to cost the comparison industry a total of at least £100million a year in television and other marketing.
‘These comparison websites are not evil – they are simply exploiting an opportunity to make money,’ says Antal. ‘But their advertising is less about providing information and more about persuasion.’
So what can you do about this £100 million extra cost? The answer is to get your money’s worth from the comparison sites.
By using them properly, you can make big savings each year – and ensure you aren’t paying for a shopping around service that is only benefiting others.
According to Uswitch, you can save an average of £387 a year on energy bills by switching providers – with fixed-rate deals often better value.
An astonishing 15 million households are sitting on their supplier’s least competitive standard variable tariff rate, according to watchdog Ofgem.
Charlotte Nunes, of Uswitch, says: ‘There is no additional fee that a consumer must pay for choosing a service using our website. It is a marketing decision made by the provider to use us and the fee varies – it is not something we share.’
She adds: ‘While it is true that we have a filter option, all the different energy deals a consumer can switch to can easily be found on the website.’