What is the future for the controversial PPI?
There have been accusations of mis-selling, massive fines and now a controversial government proposal that could essentially do away with payment protection insurance altogether. The payment protection industry is also under investigation by the Competition Commission for its low claims ratios, high commission rates and price differentiations. With so much controversy surrounding the product, the question remains, what does the future have in store for PPI?
A quick scan of the UK insurance market and it’s clear, with the exception of Norwich Union, there are few major insurers interested in underwriting or selling the niche product. Typically the product has been sold through banks, alongside loans and mortgages, leading many to question the risks of non-insurers selling an insurance product— reminiscent perhaps of taking out a mortgage through an insurance broker.
British Insurance chief executive Simon Burgess, who this week sold his business to Towergate, has long been outspoken against high street lenders selling PPI and the risks consumers face of being ripped off or mis-sold the product. The blame has been placed on these lenders for given PPI a bad name.
Lenders have been accused of pressuring customers to purchase products not entirely suitable in order use the sales to boost company profits. Recently the influential consumer watchdog Which? said people are wasting millions of pounds on pointless insurance policies, with PPI topping the list. The government has also weighed with a radical proposal to grant somewhat of a 12 month amnesty to borrowers who have fallen into hard-times and are experiencing difficulties paying down debts. The proposals could essentially mark the end of a need for PPI.
The controversy has been fuelled by yet another fine issued by the FSA for PPI mis-selling and a £1.085m knuckle rap to HFC bank which is accused of failing to give customers good advice and having suitable controls in place for the sale of the product. Insurers and brokers are experts in the field of risk and are the obvious best route for purchasing the most effective product geared towards a consumer’s needs.
Buying an insurance product without the guidance of a broker or insurer requires diligence on the part of the consumer to shop around for the best product and be aware of the degree of protection the policy grants. The more negative press PPI generates, the less likely customers will be convinced of its merits. This may be why the ABI has recently appointed consultants to carry out 2,000 interviews with members of the public to gage how PPI products could help people with financial expenses and what hte current perception is.
Public perception on PPI is believed to be so negative at the moment it will require great efforts by the ABI and insurance industry to raise the profile of the product to regain trust. Perhaps it's a matter of insurers and brokers making a greater push back into the market. Or maybe those who underwrite the products need to play a larger role in how it is sold, along the lines of affinity partnerships. Without a boost in trust, people will be less and less convinced of the policy’s merits and the future of PPI will be dim.
