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Policy decision

If I was one of the 140,000 employees of HBOS and Lloyds TSB, I would go and buy whatever forms of income and payment protection insurance those banks offer as soon as possible.

Some of these staff are in a unique position at present, awaiting redundancy notification while selling products to insure against it, and their particular situation sheds light on some of the issues coming to the surface in the PPI sector generally.

Most PPI insurers will refuse to pay out on policies if the individual “knew about the unemployment or likely unemployment at the start of the policy”. This is a massively subjective condition and one that is likely to vex the Finan-cial Ombudsman Service for some time to come as insur-ers argue over what counts as knowledge of likely unemployment.

Recent press reports of 40,000 job losses as a result of the Lloyds/HBOS merger may have been overly pessimistic but it is not beyond the realms of possibility that one in five of them could lose their jobs. If that is the case, is that enough of a proportion to add up to “likely”? And taking the issue a step further, does that mean that as at today, no Lloyds TSB or HBOS staff should be allowed to take out the company’s protection products?

These banks would surely not want to be in the uncomf-ortable position of refusing one of their mainstream products to their own staff. On the other hand, who wants to underwrite the mortgages and incomes of thousands of staff they know they are going to have to pay out for?

I have put the question to Lloyds and Halifax and both say their policy is unchanged towards their own staff and that they will not be held to have been given notice at this stage of redundancy.

If I worked for either bank, I would be getting a policy as soon as possible and hoping to beat the 90-day qualification period.

It is hardly surprising that Lloyds and HBOS have taken such a stance. To do otherwise would be dreadful for staff morale. Having made such a statement, it would be hard for them to turn round and then make staff redundant within the next 90 days, voiding their claims under the terms of their agreements. Legally, they would be within their rights to do so but it would smell awful.

Ironically, many of these staff will have been engaged, at the behest of their employers, in the sale of uncompetitive PPI to the general public, as identified by the Competition Commission’s early findings on its investigation into the matter. In June, its preliminary findings poin-ted to 14 million consumers being overcharged £1.4bn for the policies, albeit generally not for stand-alone PPI.

Some would say that rather than buying their own employer’s high-price products, these staff would be better off going for cover with one of the smaller independent providers that offer premiums at a fraction of the price of their high street rivals although I am not sure how many of them would be taking employees of such a high-profile redundancy restructure onto their books. Another issue with some but not all of the smaller end of the PPI market is the issue of reviewable rates.

I would bet that the majority of consumers do not appreciate that these policies are reviewable monthly contracts, which means that insurers can whack up premiums on 30 days notice if they want to.

I have already come across cases of premiums being increased unilaterally, leaving consumers perplexed and confused. Ant Insurance, for example, has almost doubled some of the premiums it charges. And as the employment market tightens it is likely that more and more smaller providers will put up their rates, and in turn that is likely to lead to yet more consumer claims to the FOS.

The FOS may well take the view that increases in premiums will be justifiable if they were brought to the attention of the consumer at the point of sale. Again, this will be a subjective issue so anyone selling PPI at the moment needs to be explicit on this point. All this is happening against the backdrop of the Competition Commission’s investigation into PPI. But with the Government so concerned about banks’ solvency, it is hard to see it having much appetite for forcing too much pain on them at this stage of the game.

John Greenwood is editor of Corporate AdviserMoney Marketing

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