Those of you who do not sell general insurance products may not have come across the IBRC or the GISC. In all my life, I have never come across two regulators so deep in the embrace of an industry they were meant to be watching over.
My contact with the IBRC began in the early 1990s when I inadvertently called someone an “insurance broker”. It turned out that because he was not regul-ated by the IBRC, this was not an acceptable term. He could be called a broker, an insurance intermediary, an intermediary but not an insurance broker.
It seemed to me at the time that the IBRC spent more time worrying about the nomenclature of its members than regulating the sector so I had high hopes for the GISC, its replacement. Between 2000 and October 2004, the GISC became the watchdog supposed to regulate the market. Boy, was I about to be disappointed.
A little over two years after it was set up, I was researching a story about PPI cover. Even then, it was well known that PPI was being sold alongside 60 per cent of all unsecured loans taken out in the UK. This was an astonishing percentage. Contrast it with mortgage-linked ASU, where the total is barely 30 per cent.
There was an explanation, however. Unlike almost any other product sold, when would-be borrowers approached a lender, they were never given a quote for one product – the loan – and then another quote for the PPI cover itself.
In fact, callers to almost any bank or building society were being given the monthly cost of the loan, including the non-compulsory PPI option. It was only in the latter stages of the sales process that the distinction between the two products, and the non-obligatory aspect of PPI, became clear. Of course, by then it was too late and people took out the loan and the cover together.
Evidence that this was taking place came from numerous sources. At the start of 2003, Moneysupermarket, the financial comparison website, found that out of 10 online and telephone-based quotes for a loan, all lenders gave the higher – PPI-included – monthly figure first.
Halifax, Lloyds TSB and Northern Rock gave the higher monthly cost, stating that this was the “protected” figure. Only First Direct gave the monthly cost of both a protected and unprotected loan without being prompted.
Moneysupermarket’s findings, and my own phone calls to lenders a few weeks later, were separately backed by consumer group Which? In June 2002, it too found widespread evidence of lenders quoting only the higher price that included insurance.
Equally worrying, it also found that telephone staff did not know the terms of the policies they were selling and were unable to explain them properly. In several cases, those written terms were not even sent to prospective borrowers despite being requested.
My research in 2003 suggested that they were making hundreds of millions of pounds a year in commission from selling these products.
In 2005, the Guardian carried out some excellent research and arrived at an even more astronomical figure of some £1.2bn in annual profits out of a turnover of between £5bn and £6bn.
Here we had a con that had been going on for years, which took billions out of the pockets of unsuspecting punters, in a market that was about as elastic as my grandma’s knickers. What was the GISC going to do about it?
Well, what it did was simple. It treated the initial quotation stage as if it were not part of the overall sales process. That then allowed the GISC to insist that information later provided to the consumer was the real start of the process. In turn, as long as that information had details of the “separate” PPI cover, everything was hunky-dory.
This attitude was an utter disgrace. Far from protecting them, the GISC was allowing consumers to be sold uncompetitive products on an epic scale and that is without venturing into misselling territory, amply documented by Which?.
Last week, the FSA fined Capital One Bank £175,000 for PPI-related failures.
This is only the latest in a series of fines in recent weeks for the same offence. GE was spanked to the tune of £600,000 and some loose change only last month and more fines are highly likely.
Now, I would imagine that most IFAs would raise several cheers over this litany of fines. Quite apart from the fact that they are barely affected by them – PPI has traditionally not been a major “seller” for advisers – it does raise the potential for some canny IFAs to add a “cleaner” PPI product to their repertoire if their clients need it.
But the real question many of you should be asking is this. Are you convinced that the “good old days” of Fimbra (the old Financial Intermediaries, Managers and Brokers Regulatory Association) did not allow equally big misselling scandals?
And for those happy enough to see the FSA finally standing up to the big banks and lenders for their disgraceful activities, what about the regulator’s eventual get-tough activities against your side of the industry? You can’t have your cake and eat it.