Compare the Market lifts the lid on fees, ups pressure on iSelect

Compare the Market has disclosed the fee it receives for selling health insurance through its website in a bid to win consumer trust and seize market leadership from listed rival iSelect.

​ is the first to disclose its fee, which amounts to a standardised flat fee of 27.75 per cent of the first year's premium on a policy sold through its website.

Compare the Market CEO Matt McCann wants to win consumer trust.
Compare the Market CEO Matt McCann wants to win consumer trust. Photo: Arsineh Houspian

Chief executive Matt McCann, who used to run iSelect, said he is "throwing down the gauntlet" to his rivals and aims to be the market leader in three to five years.

He said although about 90 per cent of consumers use comparison sites as a research tool for their health policies, less than 10 per cent buy through the channel.

"How do you instil trust in the consumer base so that they will buy product through you? Being completely transparent about the price that a comparison website is paid for sale of a product has led our thinking," Mr McCann told Fairfax Media.

"We think there is a competitive advantage based on trust," he said.


The fee disclosure is the first part of Compare the Market's "Code of Ethical Practice" initiative it is launching this year.

In October the Australian Competition and Consumer Commission published a report criticising the private health insurance industry for its lack of transparency and obfuscatory language.

Mr McCann said most of the fee his business charges goes to recovering costs and the profit margin is earned after 13 months. The fee is a flat rate across all funds and products.

"It is the right balance between risk and reward and starts to align us with the fund. After 13 months it really becomes a function of consumer experience with the fund."

Medibank Private and Bupa, the two giants who dominate the Australian market, have both supported the Compare the Market (CTM) initiative. Another six health funds are expected to come on board soon.

Bupa, which has had a frosty relationship with iSelect including a court battle over advertising claims, wants comparison websites to be more closely regulated.

Bupa's Australian health insurance head Dwayne Crombie said Health Minister Sussan Ley has been pursuing three key themes in her private health insurance review: affordability, simplicity and transparency.

He said the CTM fee disclosure is a good step towards improving transparency.

"Understanding how much money they [comparison websites] get paid to give advice is important for consumers. There is clearly an issue with potential conflicts of interest," Dr Crombie said.

"We haven't been that enthusiastic about certain players in the past ... if the comparators have nothing to hide they should be transparent." 

Dr Crombie said the next step is disclosure of the proportion of products listed relative to the market and clear reasons one health fund is recommended over another.

He said he thinks the fees are quite high and some players are charging more than 30 per cent of the first year's premium.

"The public don't think this kind of money changes hands," he said.

The move comes as iSelect is struggling. United States private equity firm Providence Equity Partners walked away from a takeover bid late last year and the share price is down 39 per cent on last year.

The company's first-half result was weak and the share price reflects little value in the actual operating business. iSelect has $100 million in net cash and a market value of just $223 million.

Mr McCann said that CTM doubled its revenue last year and now has almost 150 sales consultants in its call centre, up from 50 last year.

He expects comparison websites will deliver about 31 per cent of private health policy sales this year, with iSelect accounting for about 20 per cent and the "bulk of the remainder" coming from CTM.