October 1 saw the introduction of the first part of the Competition Commission’s recommendations to prevent a repeat of the systematic misselling of payment protection insurance. But can PPI’s reputation be repaired and should the industry even bother to try?
Following the commission’s investigation, in May this year it published measures to prevent consumers being sold inappropriate, expensive products which often failed to do what was promised.
These recommendations include forcing PPI providers to provide more information to customers and regulatory bodies, introducing a ban on the sale of PPI at the point of sale of the loan it is to provide cover for and a ban on single premium PPI policies.
Although most of the significant changes, such as the point of sale ban, will come into effect from April 6, 2012, PPI providers are having to change their approach to the product now as several requirements to disclose more information came into effect on October 1.
Defaqto Insight analyst for life and protection Ben Heffer says: “These changes represent another key step in addressing the well documented problems in the PPI market. Critically, a line needs to be drawn under PPI to restore consumer confidence in protection products as a whole and ensuring transparency in this market for consumers is a big step towards this.”
But Plan Money director Peter Chadborn says PPI is almost irreparably damaged.
Chadborn says: “It is a damaged brand and I cannot see an easy way back for it. Anything that gets targeted by the ambulance-chasers and thrown around for all the public to see as a dirty product means that brand is tarnished, almost beyond repair. The chance of relaunching PPI would be like saying we are going to relaunch endowments.”
He says the Competition Commission’s restrictions are likely to strangle the market but says PPI providers only have themselves to blame.
He says: “There was a place for it but unfortunately those that sold it did so irresponsibly and have ruined the chance of it ever coming back. It is almost like the goose that laid the golden egg. It could have been a viable product for those that sell loans to market and sell, if they had done it responsibly but they didn’t.
“If the Competition Commission seems to have gone too far in banning point of sale, well, maybe so, but the providers have only got yourselves to blame.”
The damage to the reputation of PPI is easy to see from the claim statistics from the Financial Ombudsman Service. The most recent figures cover complaints received in the first six months of this year and show 149,925 complaints between January and June, with almost half, 98,632, about PPI.
FOS chief executive and chief ombudsman Natalie Ceeney says: “These latest figures show a significant increase in the number of new PPI complaints referred to the ombudsman during the first half of 2011. This period coincided with the time when most of the high-street banks and some other financial businesses had put PPI complaints on hold, because of their legal challenge against the ombudsman service and FSA. As a result, complaints in this period about PPI were harder fought and harder to resolve, particularly if we found in favour of a consumer.”
However, the number of complaints about PPI is only half the story. When you look at a breakdown of the cases resolved, many companies’ uphold rates for PPI complaints are way over 50 per cent. This means that out of complaints the company initially rejected, the FOS is finding in the customer’s favour much of the time. The average uphold rate for all firms with more than 30 complaints resolved is 43 per cent but many of the biggest companies with the most complaints against them have much higher uphold rates.
The top five firms for PPI complaints were Lloyds TSB Bank, Barclays Bank, Bank of Scotland, HSBC and MBNA Europe Bank and they received 57,114 PPI complaints between them in the first half of this year. Of these companies, only HSBC, on 18 per cent, is below the industry average and the others have uphold rates of 84 per cent, 52 per cent, 47 per cent and 89 per cent respectively.
Several other high street names, including Co-operative Bank, Clydesdale Bank, Royal Bank of Scotland, NatWest and Santander, all have uphold rates of more than 50 per cent.
Which? executive director Richard Lloyd says: “These numbers show that some banks are still not dealing with PPI complaints fairly. If the next round of complaint data does not show a dramatic improvement, then the FSA must take tough enforcement action against banks where complaints handling is not up to scratch.”
The withdrawal from the PPI market of Lloyds Banking Group, one of the biggest players in the market, in July last year citing regulatory pressure and its impact on profitability shows some of the banks also think PPI has run it course.
However, Defaqto suggests there are still opportunities at this end of the protection market, particularly with products such as short-term income protection.
Heffer says: “Despite the well documented problems with PPI, the protection market still offers opportunities for advisers and income protection can certainly add value for intermediaries. The key is how advisers take advantage of the potential offered by short-term income protection and its longerterm equivalent. Protection tends to be bought rather than sold but advisers are well placed to assist consumers by raising awareness of the need for protection and sourcing a package that is right for them.”
Chadborn agrees that with PPI out of the picture, short-term income protection offers a reasonable product for clients looking for a lower-cost, simpler version of income protection.
He says: “Full-blown IP is the best solution for most people but the underwriting can be onerous in certain circumstances and for certain occupations, it can be expensive. There are many variables to consider, with or without indexation, the deferred period, the maturity period. If a simpler less onerous halfway house needs to be provided, then short-term IP is the best we have at the moment.
“I have no problem with short-term IP, in the same way that I have no problem with simple protection products in general, provided the person buying is made aware that there are alternatives.”