I am just back from skiing in Switzerland and once the topic of what is happening to Europe’s snow had been exhausted, the next topic was skiers’ tales of insurance claims that appeared to be rock solid but had been declined. I am always disappointed when, rightly or wrongly, I hear the industry that I have worked in for over 30 years held in low regard by the very people for whom it is meant to exist.
I am also disappointed by the Office of Fair Trading referring payment protection insurance to the Competition Commission but here my disappointment is more akin to regret because the referral would not have been necessary had the industry put its own house in order long before now.
Don’t get me wrong. I am not condemning all PPI but most PPI exists more for the benefit of those who supply the cover than for customers.
The OFT report has done a good job of highlighting the issues but I want to focus on just one, namely, commission. The OFT estimates the average to be 59 per cent. However, there is evidence that commission can exceed 75 per cent. That is a ludicrous reward for doing little more than persuading customers to tick a box. A far cry from what IFAs have to do to earn their keep.
Commission should be a reward for doing work of real value for customers, not a delivery mechanism for corporate greed.
Some might argue about the application of the FSA’s treating customers fairly regime but for my money we should all be treating customers fairly not because the FSA tells us to but because it is the right thing to do.
Incidentally, something that puzzles me is why charging customers vastly inflated PPI premiums to pay outrageous commission does not breach TCF.
The Icob excessive charges rule might also be expected to bite but apparently not.
Unfortunately, the cancer of PPI spreads and damages the reputation of the whole industry. This leads to lower take-up of other products such as proper protection insurance. With around half the UK population not having any life insurance, including apparently one-third of all parents, the consequences are serious.
For every customer who does not trust us enough to take out proper protection insurance and who then dies or is seriously ill, leaving dependents with no insurance safety net, we all bear a heavy responsibility.
The OFT report suggests that there is no single silver bullet that will cure PPI and I agree. To an extent, the future of PPI is now out of our hands. The Competition Commission will review the evidence and decide what to do. However, I do not think we should wait and I would be really disappointed if that is what now happened.
The big issue that can be tackled right now is excessive commission rates. With a significant proportion of clearing bank profits reported to be coming from PPI, I do not underestimate their reluctance to accept significantly less commission but wouldn’t it be refreshing if one of them did just that and changed now before being compelled to do so?
The theme of this article is PPI and the corporate greed that has bedevilled it but my point is a wider one. Namely, that there are bound to be other skeletons waiting to be discovered. As with any industry, those working in it are best placed to know where to look.
Let’s not wait for the FSA, the OFT or whoever to unearth our skeletons for us. I would like to see a concerted effort by all sectors of the industry, including the banks and finance houses, working together to eliminate unfair practices for the greater good of all customers.
Back to Switzerland. On a cold February day, the view from the Jungfraujoch is immense, as is my respect for the 19th Century engineers who had the skills and the vision to build a railway right through the middle of the Eiger. We, too, have the technical skills to do wonderful things for our customers and for society.
It is perhaps a bit more difficult to get them as excited about financial services as I am about the Jungfraujoch. But if we can shift the financial services industry to higher moral ground and improve our reputation, more customers are sure to want to do business with us – and that can only be good for them and for us as well.
David Robinson is founder and former chief executive of Bright Grey.