Financial Times

April 13 2007

Discount brokers that reduce costs and rebate commissions on unit trusts, Isas, personal pensions and life insurance have been around for years and have grown in popularity among financially-savvy Britons.

Now a new breed of little heard-of cashback internet services are offering commission rebates on home, car and travel insurance policies from dozens of companies – including many big names – as well as some credit card and current account applications.

For some insurance policies the cashbacks are more than £100 and effectively rebate over 50 per cent of the annual premiums.

The websites, which include Rpoints.com, Quidco.com and Greasypalm.co.uk, also pay cashback on purchases from other online retailers – from Tesco.com to Expedia.co.uk – and claim to have doled out millions of pounds to hundreds of thousands of online shoppers.

“For people who know what they’re going to buy it’s a no-lose situation – these services offer you more money off,” says Brian Brown, head of general insurance research at financial analysts Defaqto.

Martin Lewis of Moneysavingexpert.com, who is producing an online guide to cashback websites, says the rebates are often worth 20 per cent or more of annual home insurance premiums and 10 to 20 per cent of car insurance costs.

Cashbacks for taking out credit cards start at a few pounds but can be as high as £40 – with these sums normally paid out even if you never use the new card. By contrast the sites’ cashbacks on online travel bookings are around two per cent of the cost and rebates on other retailers are between five and 10 per cent.

While rebates aren’t available for every insurer, these services offer the potential to make best-buy policies even cheaper, or create new best-value deals after taking into account the cashback.

“High cashback rates make policies more competitive overall,” says Paul Nikkel of Quidco.com.

The rebates are funded from “introducer commissions” paid to the cashback websites by insurers and other companies who see the internet as a relatively cheap way of finding new customers. Fierce competition for new business and the shift of advertising to the internet are driving these potentially worthwhile savings.

“It can cost an advertiser £150 or more [through traditional routes] to add a new insurance customer. This is cheaper,” says Brown.
The rebates paid to customers who buy through these websites can vary but are typically 50 per cent of the commission the services receive. Quidco.com, which calls itself a “cashback co-operative”, claims to distribute 100 per cent of its commission in exchange for retaining the first £5 earned by its customer members in a year.

Rpoints.com, which typically distributes around 50 per cent of its commissions, pays users a £5 bonus when they sign up and has a “highest cashback promise” which gives extra cashback if shoppers find a better rebate deal elsewhere.

For example, Quidco.com is offering £100 cashback on Prudential motor policies, £120 on Lloyds TSB home insurance and £35 for an accepted American Express Nectar credit card application.

By comparison, Rpoints.com is giving, respectively, 5,000 points (which convert into £50), 7,000 points (£70) and 2,000 points (£20) – although users who then claim under the website’s highest cashback promise could be topped up to Quidco.com’s rebate levels.

As long as sites don’t directly charge to register it makes sense to register with them all to shop around for the highest cashbacks and to have the widest choice of companies. Minimum thresholds of up to around £25 for paying out accumulated cashback can be a catch for shopping with some services, although this is less of an issue given financial products’ high rebate levels.

Industry experts say that at best the cashback websites offer a way of cutting the cost of purchases or even of making “free money”.
“Some cashback junkies are earning thousands of pounds a year,” says Moneysavingexpert.com’s Lewis.

But experts warn against being overly tempted by the cashbacks. There are risks that users might not get their money: websites might claim a transaction didn’t “track” or that the online retailer hasn’t paid them; delays in crediting cashbacks are common, while at worst websites could just disappear without having paid the promised rebates.

And as with any cashback, discount or other “guaranteed saving”, there’s no point in earning a rebate if a policy still works out poor value overall or is not suitable. “The biggest mistake is being driven by the biggest discount,” said Defacto’s Brown.

He recommends that online financial consumers start by searching for best-value policies on Confused.com or Moneysupermarket.com. Once identified, they can then check whether the same best-buys are available with further rebates through a cashback website. This way you should still have a best-buy policy and be no worse off than if the cashback doesn’t materialise.

Home insurance buyers can also boost the value of their overall deal by buying buildings and contents cover separately – so benefiting from two cashbacks. And people who pay using credit cards which themselves offer cashback or other rewards can further improve the effective discount.

Cashback sites – as with many of the lowest cost financial deals – require people to be comfortable applying over the internet. “If you pick up the phone you stand to lose out,” notes Richard Mason, director of Moneysupermarket.com.

Equally, the cashback websites offer no advice as to the suitability of particular policies or products. “We are just a conduit; the buyer’s contract is with the merchant,” says Quidco.com’s Nikkel.

Eric Galbraith, chief executive of Biba, the insurance brokers’ trade association, questions whether online customers always understand exactly what they are buying and argues that a traditional broker may be able to help find a more suitable policy that could prove better value overall. A broker may also be useful if you make a claim.

Mason adds: “Cashback sites are a bit like discount supermarkets and they are growing. If you can find exactly what you want offering cashback and the site has robust tracking [of cashback transactions] then fine. But there is less product choice and the big problem is tracking.”

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