| OFT will probe into operation of payment protection insurance |
|
|
LONDON: The Office of Fair Trading said it will conduct an inquiry into Britain's payment protection insurance (PPI) market following a "super complaint" from charity Citizens Advice citing prevalence of mis-selling and lack of competition in the sector.
PPI is applicable to several credit products like mortgages, loans and credit and store cards. It is expected to protect a borrower's ability to repay in case of accident, sickness or unemployment. An estimated 7 million policies are issued in a year and as per latest details available an amount of 5.4 billion pounds was generated through premiums in 2003.
The OFT said the investigation will start early 2006 studying the size of the sector, awareness of the customer on the products and the manner of marketing the products and determine whether the sector is working well for consumers and whether the customers encounter problems in gaining information about alternative suppliers. It will also look into whether there is any lack of transparency of information.
The agency said it finds that consumers had difficulty in shopping around for PPI products and there are hindrances for standalone providers to join the market. Also the claims ratios for the products were believed to be in the range of 15 and 20 per cent, much below the norm for usual insurance products.
OFT's chief executive John Fingleton said it was found that PPI products are often bought as an afterthought and its complex nature and a lack of choice meant that customers are less likely to shop around for the product. "There is a high potential for consumer detriment - our study will look at whether consumers are getting a good deal or not."
Citizen Advice's Teresa Perchard said usually people buy PPI for peace of mind. In view of the huge borrowings that happen in the country and the amount of money people spend on PPI, she said it is vitally important that they get a product that gives them this and meets their needs at a fair price.
The industry welcomed the investigation and said it would assist the OFT. Association of British Insurers' director general of general insurance Nick Startling said the decision to conduct a study should complement the work insurers and lenders have already undertaken to ensure that there is a good basic policy standard all customers can rely on.
Citizens Advice has passed on several documents to the OFT to demonstrate how PPI policies can add between a quarter and a third to the cost of a loan and increase customer's debts.
It is estimated that almost 25 per cent of all credit card customers and nearly half of loan customers buy PPI products from their concerned banks. In the case of single premium policies, premium is calculated over the life of a loan and then added to the overall bill before interest is calculated. Credit Suisse First Boston in a recent study came out with figures suggesting PPI accounted for almost 10 per cent of gross profits of several leading banks.
Posted
on : Fri, 09 Dec 2005 08:40 GMT | Insurance News
By : Anne Philips
|
| |
| Related |
|
|
|
