Payment Protection Insurance policies, or PPI would appear to generate nothing but bad news. This is due to the fact that these expensive and, some would say, badly designed policies have been mis-sold to people for whom they are not appropriate. This bad press has been exacerbated by various reports detailing just how profitable these policies are to banks – in one case, a Guardian investigation found that 10% of Barclays profits over the course of a year were made through the sale of PPIs. Added to this are reports that on average only about 11% of claims ever pay out.
PPIs are policies which cover your monthly repayments in the event that you are unable to work due to accident, ill health or unemployment. It is usually taken out when applying for a mortgage, loan or credit card, although policies can be bought separately from insurers and brokers.
The FSA are also continuing to crackdown on this practice and have issued numerous fines to credit providers and retailers for malpractice in relation to PPIs. Recently, a number of motor retailers were fined for selling the insurance product alongside car finance, without first ensuring they would be appropriate to the individual. The result would be a refusal to pay out in the event of a claim. For the same reason, the Alliance and Leicester were issued with a record-breaking fine of £7 million earlier this month. An undercover investigation also found the A & L guilty of routinely including PPI in quotes, while training staff in high pressure sales where this was queried. Nevertheless, the FSA’s approach has been increasingly criticised in failing to have any effect on the widespread practice of mis-selling. They have responded by promising to escalate regulatory intervention by imposing harsher penalties.
PPIs have also been the subject of a lengthy and ongoing investigation by the Competition Commission (external link to PDF). Their preliminary findings show, among other things, that consumers are generally overcharged, and providers are unwilling to point out that:
- That the policy is optional
- That their loan application has a greater chance of success with the purchase of such a policy
- That there are ‘stand alone’, and potentially better value policies available from alternative providers
For further details of what to watch out for, refer to our consumer guide to PPIs.