Much to the consternation of banks and building societies that see their insurance revenue drastically falling, the Competition Commission (CC) has published a draft of how measures to introduce competition into the Payment Protection Insurance (PPI) market will be implemented. With a thick skin ignoring both the CC and outraged consumer groups, at least one bank is throwing lawyers in the CC’s path in last-ditch attempt to stop reform. The reforms will change what all PPI providers must do, not just those also offering you a financial product.
When the CC published its final report into PPI in January this year, it concluded that businesses that offer PPI alongside credit face little or no competition when selling PPI to their credit customers. To address the lack of competition, the CC announced its intention to introduce a package of measures to bring competition in the market including:
- A prohibition 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 reviews and other measures to make sure that improved information is available to consumers to make it easier for them to compare and search for products and switch policies at a later point.
The vast majority of the UK’s more than 12 million PPI policies are sold at the same time as a consumer takes out a loan, credit card or other type of credit. The CC found that many consumers are unaware that they can buy PPI from other providers (such as on this website), rarely shop around to compare prices and terms and conditions of PPI policies, and rarely switch PPI providers. The resulting ‘point-of-sale’ advantage makes it difficult for other PPI providers to reach credit providers’ customers and in the absence of such competitive pressure, consumers are charged high prices.
PPI covers repayments on credit products if the borrower is unable to make repayments due to accident, sickness, unemployment or (in many cases) death. PPI is sold to cover a variety of financial products, but over 90 per cent of PPI sold in the UK is: unsecured personal loan PPI, credit card PPI, mortgage PPI or secured loan PPI.
The draft measures:
- A prohibition on the sale of PPI by a distributor or intermediary to a customer at the point of sale of credit and within seven days of selling credit to that customer. This will address the point-of-sale advantage, and give the customer more opportunity to compare products and providers, in turn encouraging greater competition between providers. Whilst the distributor or intermediary cannot re-contact the customer for seven days, customers will be able to contact the distributor or intermediary and purchase a PPI policy on their own initiative from 24 hours after the credit sale.
- Distributors and intermediaries will be required to provide a ‘personal PPI quote’, which will clearly state the cost of the PPI policy individually and when added to the credit product. If this is not given at the point of sale, the credit provider must provide it if they subsequently contact the customer to offer PPI. The seven-day prohibition period starts from the later of the conclusion of the credit sale or the date on which the personal PPI quote is provided to the customer.
- A prohibition on the selling of single-premium PPI policies, whose rebate terms act as a barrier to consumers switching while the prices of these policies are unduly difficult to compare with other PPI policies. Premiums can be charged monthly or annually. If an annual premium is charged and the customer decides to terminate the policy, then a prorata rebate must be reimbursed. No separate charges can be levied on a customer for administration or other costs arising from the set-up or early termination of a PPI policy.
- A requirement on all PPI providers-not just those connected to loans- to provide certain information and messages in PPI marketing material. This must include the price of their PPI, expressed in a common format of monthly cost per £100 of monthly benefit, and that PPI is optional and available from other providers.
- A requirement on all PPI providers to supply information to the OFT for the purpose of monitoring the remedies package and to provide information about their claims ratios to any person on request.
- A requirement on all PPI providers to provide an annual review for PPI customers, including information similar to that provided in the personal quote, to encourage customers to review their policy annually and make it easier for customers to decide whether to switch. Where distributors of retail PPI offer an insurance package containing PPI and merchandise cover, they must also offer, as a separate item, PPI cover alone.