Other measures designed to introduce competition between suppliers that the CC proposes include a prohibition on single-premium policies; personal PPI quotes; annual statements, and measures to make sure that improved information is available to consumers, to make it easier for them to compare and search for products and switch policies at a later point.

The vast majority of the UK's 12 million+ PPI policies are sold at the same time as a consumer takes out a loan, credit card or other type of credit. The CC found that 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.

“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,” said Peter Davis, Inquiry Chairman and CC Deputy Chairman.

“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.

“We are introducing a range of measures to get competition working in this market, giving consumers the time and ability to make a considered and informed choice and other providers the chance to compete far more effectively with the initial credit provider. Competition will provide consumers with lower prices and better choice.

“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 recognise 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 CC expects that the measures will come into force during 2010, with the information remedies in place by April 2010 and other measures by October 2010, each to coincide with Government common commencement dates for new legislation and regulation.

Andrew Hagger of Moneynet.co.uk welcomed the CC’s decision to ban PPI at the point of credit sales and outlaw single premium PPI products.
 
“The banning of single premium PPI, although inevitable, is a bitter blow for high street lenders who have, for far too long, been making massive profits at the expense of loyal customers,” he said.
 
“Customers have been paying hundreds, and in some cases thousands of pounds over the odds for inflexible and poor value cover.
 
“At a time when the banking sector is already in turmoil, the last thing lenders wanted was to lose that lucrative PPI income stream.
 
“The concern is that some of the profit lost from PPI sales may be reclaimed in the form of higher interest rates being charged on personal lending products. Time will tell, but this is an area we will be watching closely during 2009.
 
“PPI can prove an invaluable product, as many of the recently unemployed will no doubt confirm. However, the pressure for consumers to sign up has often been more down to internal sales targets rather than a real concern to protect the borrower.
 
“Now that the market is being opened up and becoming more transparent we could suddenly see an influx of new providers looking for a piece of the action,” Mr Hagger concluded.

Ian Williams, director of communications at price comparison site moneysupermarket.com, took a similar view:
 
"As a product there is nothing fundamentally wrong with payment protection insurance; indeed Association of British Insurance (ABI) statistics recently showed a 118% 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 CC’s recommended ban on point of sale selling of PPI.

"What we need now is for there to be a vibrant and competitive market in standalone 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, it’s likely that the cost of borrowing money itself will rise, as many lenders subsidised lower interest rates with PPI commission income."

The Association of Mortgage Intermediaries’ emphasis was rather different:

"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,” said AMI Director Robert Sinclair.

"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.”

The full report can be accessed at www.competition-commission.org.uk,

---

Tag this article :