PPI Sales To Be Banned Alongside Credit Agreements

THE COMPETITION Commission will ban the sale of payment protection insurance (PPI) alongside credit agreements to give customers a better chance of finding a cheaper policy with better terms.

It will also ban the sale of ‘single premium’ policies – which tie the buyer into a contract once the premium has been paid, preventing them from changing their minds later on and buying a cheaper or more comprehensive policy.

The market in the UK is worth nearly £4 billion in premiums each year, according to the Commission, but it said the “vast majority” of the 12m PPI policies in force in the UK have been sold alongside credit agreements. This is often because the salesmen can earn significant commissions for selling these insurance products, designed to protect your repayments if you have an accident, become too unwell to work or you become unemployed.

However, customers have often found they are unable to claim on the policies if they are in this position, as the policy terms can make the cover effectively worthless.

The Commission will ban the sales of these policies alongside credit agreements from 2010 so that people have the opportunity to shop around to compare prices and terms for the policies.

The credit provider, whether the credit is an unsecured loan or credit card, for example, will not be allowed to contact the customer for seven days, although the customer, if they wish, can get in touch with the provider of their own free will within 24 hours.

From 2010, distributors and intermediaries offering these policies will need to give a “personal PPI quote”, which will outline the exact cost of the credit and the policy both together and separately.
Single premium policy sales will also be banned, as they are difficult to compare with other PPI policy premiums, and the marketing of PPI will include the need to express the monthly cost to the consumer in relation to £100 of benefit.

Customers will also receive an annual statement on the cost of their product which will encourage them to continue to review the cost of their policy and decide whether to switch.
Peter Davis, inquiry chairman and Competition Commission deputy chairman, said: “Many consumers are unaware that they can buy PPI from other providers, rarely shop around to compare prices and terms and conditions of PPI policies, and rarely switch PPI providers. The resulting ‘point-of-sale' advantage makes it difficult for other PPI providers to reach credit providers' customers and in the absence of such competitive pressure, consumers are charged high prices.

“These are significant measures carefully designed to address the serious competition problems that currently exist in this market. The ‘point-of-sale' advantage has meant that leading providers have faced little competition for PPI and, as a result, have charged persistently high prices.

Consumers' interests are not best served when the only choice the vast majority have is whether or not to purchase their credit provider's PPI product. The resulting lack of competition means that the only offer consumers get is simply worse value than they are entitled to expect. Allowing the current short-comings to continue unchecked would be damaging not just to consumers but also ultimately to the PPI industry itself.
“In the current economic climate there may well be a greater need for consumers to obtain the cover that PPI-and other protection products-can provide. The increased economic uncertainty makes it even more important that consumers have choices, that they have the opportunity to make the right choice and they can get value for money.

“We recognize that prohibiting firms from completing PPI sales during this time interval and prohibiting single-premium policies are significant interventions in this market. However, these actions are necessary to enable consumers to benefit from lower prices and better choice.”

The current economic climate is bringing home just how important it is to have some sort of cover for losing your job. In November, there were 19,105 unemployment claims on PPI policies – more than double the 8,772 claims made in November of the previous year, according to the Association of British Insurers (ABI).

Nick Starling, the ABI's director of General Insurance and Health, said: "The ABI supports any measures that help people make an informed choice - for example, the remedies for clearer, more timely information about the cost of PPI and the product features. However, the ABI believes that the point of sale ban carries significant risks for borrowers, mainly by leaving them unprotected at a time when unemployment cover has never been needed more.

"We welcome the reduction from 14 to seven days for the point of sale ban which shows that the Competition Commission has acknowledged our fears about the risks to borrowers. However, we remain extremely concerned that the fundamental risks to borrowers have not been addressed. Our job now is work with our members and the regulators to minimise these risks and make it work.  The devil will be in the detail."
With unemployment already standing at 1.92m, and set to rise still further, there is every need for these policies to be sold, but they must be sold to the “right people in the right way”, said Louise Bond, personal finance manager at uSwitch.com.

She added: “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."