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FSA and OFT publish draft guidance on payment protection insurance

FSA - Financial Services Authority

The Financial Services Authority (FSA) and the Office of Fair Trading (OFT) have joined forces to help prevent the problems associated with payment protection insurance recurring in a new generation of products.


The FSA and the OFT are consulting on proposed guidance to firms in relation to payment protection products. The two organisations will continue to monitor developments in the market, and will take appropriate action under their respective powers where firms' products or practices risk causing detriment to consumers.


The FSA's guidance stresses that firms should ensure that product features reflect the needs of the consumers they are targeting.  There are four key areas of concern that providers should think about carefully:


  • Firms not properly identifying the target market for the protection product

  • The protection not reflecting the needs of the intended consumers

  • The benefit of a successful claim not matching the needs of the claimant; and

  • Product features or pricing structures creating barriers to comparing products, exiting a policy or switching cover.


Margaret Cole of FSA says, "This is the first time that the FSA has issued guidance on the design of a specific product. Firms must learn the lessons of the past and make sure they have consumers' needs at the heart of new product development. That is why we are acting early to ensure firms understand the risks they should bear in mind when designing these products, and how they can manage these risks when developing or distributing the product. We want to put consumers front of mind for the providers and distributors of these products."


David Fisher of the OFT adds, "It is important that the problems encountered with mis-selling do not arise in relation to new payment protection products. Firms need to ensure that they comply with relevant legislation and do not engage in unfair or improper business practices. In particular, they should make clear to consumers what they are signing up to, and how much it costs, so that they can make properly informed decisions."

Income protection insurance news: 6 November 2011

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