The Competition Commission has published its proposed remedies designed to increase competition in the Payment Protection Insurance market.
It had already concluded that distributors of PPI - such as banks, mortgage providers and credit card providers - face little or no competition when selling PPI to their credit customers. The vast majority of the UK's more than 13 million PPI policies are sold at the same time as a consumer takes out a loan or other type of credit and the Competition Commission found that many consumers are unaware that they can buy PPI from other providers. Consumers rarely shop around to compare prices and terms and conditions of PPI policies and rarely switch PPI providers. This point-of-sale advantage makes it difficult for other PPI providers to reach customers and, in the absence of competitive pressure, PPI distributors are able to charge high prices.
Banks and other providers of loans and mortgages all make huge profits on the sale of insurance and many have been discredited in their sales practices, excessive price and failure to provide understandable consumer information.
Naturally, banks and other lenders, as well as some insurers who mainly sell via them, are spitting with fury at the proposals. But in the current climate, few people have any sympathy for an area of insurance where for years they have been making fat profits at the expense of the consumer, with no risk. You can read the limp defences of the proposals elsewhere.
The Competition Commission outlines a number of possible remedies designed to increase competition in the market and is now proposing a package of measures which it considers will be practical and effective in increasing competition in the market to the benefit of customers. As yet, these do not have the force of law, but having spent huge sums bailing out the lending industry, politicians are in no mood to block the proposals, and may even seek to speed them up.
The proposed package of remedies includes:
- A prohibition on the sale of PPI by a distributor to a customer within 14 days of the distributor 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. While the distributor cannot re-contact the customer for 14 days, customers will be able proactively to contact the distributor and purchase a PPI policy 24 hours after the credit sale
- Credit providers 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 do so if they subsequently contact the customer to offer PPI, and the prohibition period starts from the date on which the personal PPI quote is provided to the customer
- A prohibition on the selling of single-premium PPI policies, which act as a barrier to customers switching and the costs of which are difficult to compare with other PPI policies
- A requirement on all PPI providers to provide certain information and messages in PPI advertisements. 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 provide an annual statement 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.
The final report will be published in January 2009 along with a timetable for implementation.
The Competition Commission is an independent public body, which carries out investigations into mergers, markets and the regulated industries.
PPI covers repayments on credit products if the borrower is unable to do so due to loss of earnings as a result of accident, sickness, unemployment or (in many cases) death.