Rocked by controversy, the UK’s £5 billion ($7.7 billion) annual
premium payment protection insurance (PPI) market has been the
subject of numerous regulatory enquiries.
The Competition Commission (CC) has now proposed remedies to
increase competition market, remedies as controversial as the PPI
market itself.
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In a provisional report published in June 2008, the CC concluded
that distributors of PPI products such as banks, mortgage providers
and credit card providers face little or no competition when
selling PPI to their credit customers and are thus able to charge
high prices.
Of particular concern to the CC is that most of the 13 million
PPI policies written annually are sold at the same time as a
consumer takes out a loan, and that many consumers are unaware that
they can buy PPI from other providers.
Following a mid-2008 mystery shopping study the Financial
Services Authority came to a similar conclusion.
In a consultation paper published in November, the CC put
forward a number of proposals to remedy the situation.
These include prohibiting the sale of PPI to a customer by a
distributor within 14 days of selling credit to that customer,
though the customer may opt to purchase PPI from the distributor 24
hours after the credit sale.
Credit providers will also be required to provide a personal PPI
quote clearly stating the cost of the PPI policy individually and
when added to the credit product while single-premium PPI policies
face a total ban. In addition, PPI providers would have to provide
PPI customers with an annual statement.
The CC’s proposals have evoked widespread comment, including
strong opposition from the Association of British Insurers (ABI)
which went as far as to warn that in their present form they will
kill the PPI market altogether.
“This is devastating news for consumers,“ said the ABI’s
director of general insurance and health, Nick Starling.
“By effectively denying consumers PPI in the very economic
climate that they need it most, the Competition Commission has got
this completely wrong.”
He added that unemployment claims on PPI policies have increased
by 69 percent in the last twelve months.
Adding their voice of criticism the British Bankers Association
accused the CC of being “simply wrong” and “totally without
conscience to encourage people to borrow without back up” at a time
of rising unemployment.
Indicative of the controversy surround the CC’s proposals, Peter
Vicary-Smith, CEO of consumer activist organisation Which?
described them as “a huge victory for consumers.”
The proposals also received strong support from a PPI market
player, the Post Office’s insurance unit.
“The Post Office has long been calling for an open market for
PPI sales, where providers are honest with customers that other,
cheaper standalone products are available,” said Duncan
Caesar-Gordon, the Post Office’s head of protection policies,
regarding the proposed changes.
He pointed to a recent study by the Post Office that revealed
shows that 20 percent of full-time workers have more than one PPI
policy and could save themselves up to £570 annually by taking out
a single product that could cover all major household bills.
In its June review the CC estimated that PPI policyholders are
overcharged by about £1.4 billion a year.
Interested parties have a tight deadline to comment of the
proposals before the CC publishes its final report in mid-January
2009.
