FSA estimates PPI redress could reach over £4bn
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The FSA’s proposals for firms to compensate consumers who have been missold payment protection insurance could cost the industry over £4bn.
In its latest paper on the assessment and redress of PPI complaints, the FSA has published estimates for the first time on the cost of offering redress to PPI customers. It suggest a potential cost to the industry of £1bn-£3bn for customers that have no yet complained, plus between £700m and £1.2bn over five years for customers who have already complained.
The FSA estimates that insurance brokers may have to pay up to £430m with the rest paid for by a varying range of PPI providers. It suggests around £120m could fall onto the Financial Services Compensation Scheme through claims against secured lenders that have gone bust and up to £40m for insurance brokers. It says these figures are unlikely to trigger other sub-classes having to pay anything extra.
The FSA estimates that average redress for single premium products per case is £1,925 and for regular premium products £990 per case. One-off costs for IT systems to handle the redress of missold policies is estimated to reach £36m and staff recruitment and training delivery costs will reach £4.6m.
Last year, the FSA consulted on handbook guidance concerning the fair assessment and, where appropriate, redress of PPI complaints. It also consulted on a handbook rule requiring the re-assessment of all previously rejected PPI complaints made since January 2005. Where a firm identified failings in its PPI sales practices, the FSA said it is appropriate under TCF principles for that firm to consider the position of non-complainant consumers who may have suffered detriment from such failings.
The FSA says: “We accept that the two sets of costs are substantial. As any particular (post January 2005) sale can only be in one cost pool or the other - ie a sale complaint, or else a sale not complained about but reviewed - more cases in one pool will mean fewer in the other. So the higher ends of each range are very unlikely to both occur.
“However, in light of the firm’s concerns about the potential financial implications if they were to conduct such reviews, find mis-selling had been prevalent and decide to redress it, we have now set out our estimate of what we consider to be a realistic range for such potential redress to non-complainants.”
The regulator says the main prudential impacts we have identified concern specialist secured lenders and general insurance brokers.
The FSA is now revisiting it’s package of remedies over the sale of PPI. It is to hold a further six week consultation on its revised package of measures following negative feedback from firms over proposals. It says the wider costs and consumer benefits have altered since the original consultation and the FSA wants to test the revised financial assumptions with firms.
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Readers' comments (17)
Julian Stevens | 9 Mar 2010 3:49 pm
Once again we see the FSA clobbering the industry after it has allowed certain sectors of the market (mainly the banks, as usual) to run amok.
Sure, PPI was oversold and frequently inappropriately sold. But where were the FSA's guidelines on PPI? MIA as usual.
And Crash Gordon described the FSA as "a world class regulator". That just goes to show how woefully out of touch he is with financial markets and the financial services industry.
But we struggle on regardless. And we pay, pay, pay.
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Simon Webster | 9 Mar 2010 3:55 pm
One of the FSA's statutary objectives is to promote an orderly market and here we are again 10 + years late and the FSA is creating more chaos.
Large sections of the industry knew that many PPI sales were wrong; told the FSA and they still did nothing - preferring as ever to concentrate on all the other things they weren't doing anything about.
Now the industry has to find £4bn in the middle of a recession because yet again the FSA srewed up and acted far too late.
Their conduct woud make a great script for the office...
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Anonymous | 9 Mar 2010 3:57 pm
DESPITE ASSURANCES FROM THE FSA I AM NOT CONVINCED THAT A LARGE PROPORTION OF THE COSTS WILL NOT BE RECOUPED BY THE FCS BY RAISING ITS FEES OVER ALL CLASSES. THE MAJOR PLAYERS IN THIS AREA SHOULD BE TACKLED E.G THE BANKS, BUILDING SOCIETIES, SUBPRIME LENDERS AND SECURED LOAN PROVIDERS
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Simon Kershaw | 9 Mar 2010 4:07 pm
I have always despised PPI as a product, particularly in its single premium format. I do however have a hint of sympathy for those in the industry who have responded to the FSA consultation paper.
Some of the responses were finely tooled by intelligent people, but the response from the regulator in every instance was the one we have all become used to - "we do not agree because we are right!"
When dealing with this regulator the term "consultation paper" has evolved into an oxymoron.
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BC | 9 Mar 2010 4:09 pm
Stable, door, bolted. What were they doing? They will never be as quick as the Banks or sharks that were selling these toxic policies. Have already heard of one mortgage broker recently, wound up his Ltd Co and is now calling ex clients (from the same office) offering to help them pursue a claim and get some free compo from the FSCS, on PPI he sold, and is now getting a second cut. Paid for by thee and me. Sadly, I doubt in the Regulators eyes he is doing anything wrong.
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John | 9 Mar 2010 4:13 pm
WOW! Shades of pensions "mis-selling". Something must have gone seriously wrong for a product to be allowed that was so unsuitable for most of the people most of the time. It is not as though it has not been around for some time. I fail to see why it is costs us so much in extras for the problem to be addressed - £36m for a new computer system?
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Paul Harding | 9 Mar 2010 4:20 pm
So, having never touched PPI with a bargepole, are we now going to have to pay towards this as well, jsut because we rightly recommend life cover or income replacement cover to our clients? (Which apparently puts us into the same general insurance FSCS category as PPI, warranty insurance and car insurance brokers!!!??
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Evan Owen | 9 Mar 2010 5:09 pm
Thank goodness I am no longer in this insane industry. I told Lesely that I would never return to do the only thing I thoroughly enjoyed, she looked surprised so I qualified the statement by saying some sanity would need to prevail, can you see any??
Will the people who earned huge bonuses from forcing their salespeople, sorry 'advisers', to force PPI down the throat of everyone and anyone be expected to repay those bonuses? No.
How many firms will fall over because they can't repay all the premiums plus interest?
What a shambles...
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Anonymous | 10 Mar 2010 8:37 am
I have not sold this product and I feel that it is illegal that I should be made responsible in any way.
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Evan Owen | 10 Mar 2010 10:41 am
Will ALL firms be hit by this? I don't know many IFAs who don't have GI permissions, do you?
If any of you believe you should not be liable for products you rightly avoided like the plague I would be interested in talking to you whether you are insurance, investment or mortgage intermediaries. evan@ifadu.co.uk
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