Defaqto announces new star rating procedure

Defaqto has announced the introduction of a new procedure for star rating personal financial products.

Over the past seven years Defaqto has been producing star ratings for a wide range of financial products. During this time, the process was based on products being scored for their quality against a set of product criteria using Defaqto’s unique Product DNA process which is built into the Aequos database. Depending on the scores achieved, products were located in one of five star categories, with Five Stars being the top rating and One Star the lowest rating.

To get into the Five Star category, a product had to be scored within the top 10 per cent of all products. For Four Stars, products had to be the next 15 percent of products, for Three Stars in the next 25 percent and so on.

Star ratings for different product groups were produced over the course of a year for inclusion in the publication of the relevant Defaqto Insight market report.

During 2007 Defaqto underwent a review of its rating procedures and decided that in future it will produce all star ratings on the same day – 1st February – and that these ratings will apply for the 12 months to the end of the following January. As well as the revised schedule, the methodology for deciding on product ratings has been improved by Defaqto’s product experts, from being a relative comparison to becoming a set of absolute ‘bars’. As part of the new rating, Defaqto has stipulated that before a product can be rated as Five Stars it must provide some level of cover or benefit in a number of key areas.

These changes will give product providers distinct advantages over the current system:

Getting a Five Star product rating will no longer depend on how many other Five Star rated products exist.

Providers will know that if their products meet or exceed the top bar for quality, they will be rated Five Stars.

Providers licensed to use Defaqto’s star rating logo will be able to use the logo more effectively, knowing it relates to the current year and the first month of the next year.

Providers can develop products over the course of a year knowing in advance the criteria used to score product quality and what the star rating boundaries are.

The research methodology together with the features and benefits used by Defaqto in calculating each product’s scores, as well as the boundaries for each star rating, are produced within the relevant Star Rating Report 2008 publication.

Commenting on the change, Brian Brown, Head of Insight at Defaqto said: “We believe that these changes will bring greater certainty to providers both in terms of the development and marketing of their products as well as enhanced confidence in the star ratings themselves among consumers.”