FSA regulation could unintentionally restrict access to payment protection insurance as consumers become increasingly aware that they need to protect themselves and their borrowing.
The onset of regulation will have a significant impact on the distribution of payment protection insurance.A big decision faces those who are not full-time professional insurance intermediaries but who are currently selling PPI cover. For them, sales of PPI are ancillary and complementary to the primary sale. The cost and risks associated with compliance will lead to a serious reappraisal of whether to continue arranging PPI.
The FSA final rules are subject to a very tight implementation timetable. Nevertheless, there are still issues to be resolved, not least the question of capacity in the professional indemnity market. Renewals and tacit renewals also require further clarification.
There are other initiatives for PPI intermediaries to consider – the distance marketing directive and the DTI's Consumer Credit Act White Paper. The latter hardly mentions insurance but, as PPI is a secondary purchase associated with consumer credit products such as loans and credit cards, it is certain to be affected.
Unfortunately, it is apparent that the originating bodies of the three initiatives have not collaborated in designing a co-ordinated implementation timetable. Inevitably, the costs of the lack of interplay will be borne by the PPI market.
If there is a significant withdrawal by secondary intermediaries, the inability to position PPI as a convenience purchase alongside the primary sale will restrict easy access to protection for consumers.
Although PPI has an image problem, it provides part of the consumer protection safety net in line with sustainable homeownership, a key objective of Government housing policy. PPI will assume greater importance if interest rates continue to rise and there is a downturn in the economy and labour markets. It is ironic that regulatory measures to protect consumers could have the unintentional effect of restricting consumer access to protection endorsed by the Government.
Research published last year by the ODPM acknowledged that “unless managed by an effective safety net, borrowers may experience payment difficulties, mortgage arrears and possession”.
Even though restricted access to PPI will affect all socio-economic groups, it is arguably lower-income earners who most need PPI protection. The ODPM research shows that lack of insurance is most pronounced among single people and lone-parent households and highest in the lowest income quintile.
There is a need for PPI providers and intermediaries to nurture and encourage existing distribution channels after regulation as well as developing new marketing opportunities. Consumers need to be aware of the need to protect themselves and their borrowing and have easy access to a range of good value products.