The sale of single premium payment protection insurance has been banned by the Competition Commission with industry experts arguing this is the death knell for this product.
The commission published its final 323-page report into the PPI market last Thursday and set out the measures it decided were needed to introduce competition between suppliers.
To address the lack of competition, the commission demanded a ban on the sale of PPI during the sale of the credit product and for seven days afterwards, a prohibition on single-premium policies, personal PPI quotes, annual statements and measures to make sure improved information was available to consumers to make it easier for them to compare and switch policies at a later date.
The commission found that many consumers were unaware they could buy PPI from other providers, rarely shopped around to compare prices and terms and conditions of PPI policies, and rarely switched PPI providers.
The resulting point-of-sale advantage made it difficult for other PPI providers to reach credit providers’ customers and in the absence of such competitive pressure, consumers were charged high prices, the commission stated.
Peter Davis, inquiry chairman and deputy chairman for the Competition Commission, said the measures had been designed to address the serious competition problems that currently existed the market.
He said: “The point-of-sale advantage has meant leading providers have faced little competition for PPI and, as a result, have charged persistently high prices.
“Consumers’ interests are not best served when the only choice the vast majority have is whether or not to purchase their credit provider’s PPI product.
“The resulting lack of competition means that the only offer consumers get is simply worse value than they are entitled to expect. Allowing the current shortcomings to continue unchecked would be damaging not just to consumers but also ultimately to the PPI industry itself.”
The Competition Commission stated it expected the measures would come into force during 2010, with the information remedies in place by April 2010 and other measures by October 2010, each to coincide with government commencement dates for new legislation and regulation.
Nick Starling, director general of insurance and health for the Association of British Insurers, said: “We welcome the reduction from 14 to seven days for the point-of sale-ban, which shows the Competition Commission has acknowledged our fears about the risks to borrowers.
“However, we remain extremely concerned that the fundamental risks to borrowers have not been addressed. Our job now is work with our members and the regulators to minimise these risks and make it work. The devil will be in the detail.”
Louise Hanson, head of campaigns for consumer champion Which? said: “This decision helps sound the death knell for PPI. For too long too many consumers have suffered from shoddy, expensive and inadequate protection.
“We are finally seeing the light at the end of this very long tunnel but it is now time for the industry to develop useful products that consumers actually need to protect their finances.”
Source: FT Adviser
Huntswood