Early warning

The approach announced in the FSA’s policy statement on the assessment and redress of payment protection insurance complaints will not have come as much of a surprise to readers but it still represents another dark day for an industry which never seems able to shake off the blight of mass misselling for any prolonged length of time.

Startlingly, the FSA has said in the past that 5-10 per cent of insurance intermediaries may fail as a direct result of the cost impact of its measures.

There cannot be any denying that PPI has over the years been the subject of some dubious sales practices and the manner in which many complaints have been dealt with has been far from satisfactory – particularly the way in which some of the bigger banking groups have persisted in rejecting claims they know will ultimately be upheld by the Financial Ombudsman Service. The industry also has itself to blame for not coming up with a self-imposed proposal a year or two ago that satisfied the FSA sufficiently for the industry to put its own house in order.

However, there will be widespread dismay at how little the FSA’s approach has changed from the proposals it made in March. There will be deep disappointment about the application of standards retrospectively, including on sales made before the FSA regulated general insurance mediation and the lack of differentiation between different types of PPI – for example, regular-premium mortgage payment protection insurance – or different sales channels – the FSA adopting an approach where brokers are lumped in with banks, credit companies, car dealerships and retailers

Industry concerns about assessment of evidence, calculation of redress and the timetable for implementation have also largely been ignored.

The FSA’s estimates for the costs of its proposals have gone up yet again, now standing at between £800m and £1.3bn for the complainthandling proposals, and £1.1bn and £3.2bn for the wider package of measures. The estimated cost for insurance brokers has risen from £430m to £470m since March. Counter-intuitively, however, and without much explanation, the FSA has revised down its estimate of the number of brokers that may fail as a result of its measures from 100 to 35-40. Well-run firms will also suffer financially, with an estimated £35m of these costs passing through the Financial Services Compensation Scheme.

Beyond the immediate ramifications of this policy statement, the question arises as to whether the “horizon-scanning” (the current buzzword at Canary Wharf), intensive-supervising, and product-regulating FSA – or, after the restructure, Consumer Protection and Markets Authority – will actually be any better at spotting a problem like the one over PPI or at taking steps to mitigate the impact before it damages consumer confidence and affects the entire industry.

We must all hope it will be because misselling tarnishes everyone.

Dan Preddy is financial services partner at Beachcroft