Following the publication of the Competition Commission’s Emerging Thinking document on payment protection insurance, I am delighted to find that the integrity of the insurance industry and intermediaries remains intact. We have been given a clean bill of health.
For years I have maintained that the product itself is sound (apart from single-premium cover) and when sold properly will provide a safety net and peace of mind to those who are unable to continue with their loan and credit repayments.
The commission’s feedback offers no new radical insights but it is the most comprehensive investigation of the market so far, despite delaying tactics from some parties who have been unable to retrieve information from their databases or provide data in the format required.
It suggests “a significant degree of countervailing buyer power is being exercised by distributors” and questions why commission levels for PPI are higher than for other general insurance products at between 50 to 80 per cent for personal loans and 40 to 65 per cent for mortgages.
The commission believes that the cost of PPI in some instances is higher than the interest paid on loans and there is limited competition at retail level.
It is not convinced, as many would suggest, that credit provision and PPI sales are the same market. It is also concerned that advertised credit APRs do not include PPI costs and pre-purchase information is poor.
I believe the right products are in the wrong hands and this view will in time be borne out by further research by the commission. All the issues raised by consumers, such as lack of pre-purchase information, confusion over jargon and uncertainty over policy cover, can be addressed by independent PPI providers.
The most interesting area for investigation is around whether distributors’ PPI profits prop up losses made at credit product level. Given the current credit crunch, let us hope the commission’s concerns are unfounded, otherwise the ramifications will be huge.
I look forward to the commission’s proposed remedies, due in the second half of 2008, and the final report in November or December of 2008.
Director, British Insurance