Sale of single premium PPI is to be banned

(30/01/2009)

The Competition Commission (CC) has published its final report into the Payment Protection Insurance (PPI) market.

Commenting on the Competition Commission's final report into PPI, Ian Williams, director of communications at moneysupermarket.com, said: "As a product there is nothing fundamentally wrong with payment protection insurance; indeed ABI stats recently showed a 118 per cent increase in unemployment claims on PPI policies demonstrating how the insurance can protect borrowers. But for too long now many lenders have been hard-selling selling PPI policies that were often inappropriate, expensive or unnecessary. So lenders have nobody to blame but themselves for the Competition Commission’s recommended ban on point of sale selling of PPI.

What we need now (and what moneysupermarket.com will play its part in) is for there to be a vibrant and competitive market in stand alone PPI insurance so that people with debts can insure themselves against the risks of being unable to repay them due to accident, sickness or unemployment. Whilst a more transparent and competitive market for PPI should lead to cheaper cover, its likely the that cost of borrowing money itself will rise as many lenders subsidised lower interest rates with PPI commission income.”

Moneysupermarket.com tip: “Consumers shouldn’t write off PPI, it is worth considering when borrowing money. But shop around for the best deal and ensure that the cover is appropriate and meets your needs.”

Responding to the report Robert Sinclair, Director of the Association of Finance Brokers (AFB), said: “The AFB is disappointed but not surprised by this announcement that the sale of single premium PPI is to be banned. The Commission has always failed to recognise the benefits of this product designed for a particular segment of consumers. The issues around pricing were recognised by the Commission and the remedies still fail to address this key issue.

“The AFB regrets that the Commission has not recognised the differences in the products and sales processes surrounding broker led secured loan PPI advice and sales. The introduction of 7 day waiting periods or 24 hour consumer deferment will add cost and complexity to an already lengthy process. The advertising provisions and the regular statements recommendations whilst likely to increase "shopping around" will increase costs and are likely to increase the numbers of those unable to claim as they will have not recognised issues around pre-existing medical conditions.

“Many consumers benefit from this protection and we hope that the changes demanded by the Competition Commission do not increase the numbers of individuals who will then be wholly reliant on state benefits. The AFB will continue to monitor developments closely and will inform members of the steps they need to take when dates are confirmed.”

Louise Bond, Personal Finance Manager at uSwitch.com, commented on the Competition Commission’s final PPI report: “This final report from the Competition Commission strongly indicates that the PPI market will be changing for the better giving people time to shop around for the best deal. It is, however, unfortunate that mis-selling ran rife and unchecked in the industry for so long, and that providers have to be forced to do the right thing. Although some banks have already withdrawn single premium policies, it could be because they are safe in the knowledge that they have already protected their margins by steadily increasing loan and credit card rates.”

Bond concludes: “In the current climate with unemployment currently standing at 1.92 million – a figure set to rise further this year – there has never been a more prominent place in the market for PPI products. However, these policies must be sold to the right people in the right way. More also needs to be done to address the negative ratio between the number of policy holders and the number of successful claimants. This could be attributed to people being sold unsuitable products in the past, whereby they would stand no chance of a claim being upheld.”

Louise Hanson, Head of Campaigns at Which? said: “This decision helps sound the death knell for PPI. For too long too many consumers have suffered from shoddy, expensive and inadequate protection. It’s a great shame that since we began campaigning for better products, many people have wasted millions of pounds on PPI and have been ripped off in the process.

“Industry shouldn’t wait until 2010 to get their house in order and the FSA should make them act sooner. Last week five major lenders* said they’d pull out of the single premium market by the end of January. PPI has been thoroughly investigated for years and everyone knows its failings, so what’s the industry waiting for?

“We’re finally seeing the light at the end of this very long tunnel but it’s now time for the industry to develop useful products that consumers actually need to protect their finances.”

Responding to the report Robert Sinclair, Director at the Association of Mortgage Intermediaries (AMI), said: “AMI is disappointed that the Commission has not recognised the differences in the products and sales processes surrounding intermediated and direct mortgage PPI advice and sales. The Commission should have treated these two channels differently.

“The introduction of 7 day waiting periods or 24 hour consumer deferment will add cost and complexity to an already lengthy sales process. The proposed advertising and statementing provisions are likely to increase shopping around by consumers. However, consumers need to be aware that if they transfer a policy they might then not be insured due to any recently arisen medical conditions.

“Many consumers benefit from this protection and we hope that the changes demanded by the Competition Commission do not increase the numbers of vulnerable individuals who will then be wholly reliant on state benefits. We will continue to monitor developments closely and will inform members of changes they will need to make when dates are confirmed.”

Related categories:  Home insurance   Income protection   Landlord insurance   Legislation and regulations   Mortgage protection 

Print version | Email to a friend | View other articles