Loan Payment Protection Insurance Competition Commission report

The Competition Commission has today published for consultation its proposed remedies designed to increase competition in the Payment Protection Insurance (PPI) market.

In its provisional findings report published in June 2008, the CC 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 CC found that many consumers are unaware that they can buy PPI from other independent providers.

Consumers rarely shop around to compare loan protection insurance 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 credit providers’ customers and in the absence of such competitive pressure, PPI distributors are able to charge much higher prices than can be found at an independent supplier of loan payment protection.

Along with its provisional findings report, the Competition Commission published a Notice which outlined a number of possible remedies designed to increase competition in the market.
Since then the Competition Commission has been collecting evidence regarding those possible remedies from PPI providers, consumer groups, the Financial Services Authority (FSA), the Office of Fair Trading (OFT), and other interested parties.

Following a series of hearings and a considerable amount of analysis, the Competition Commission 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.

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. Whilst 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. The CC considered whether mandating pro-rata rebates on single-premium policies would be a sufficient remedy, but has concerns about such a remedy which led it provisionally to conclude that it would not be sufficiently effective.

• A requirement on all PPI providers to provide certain information and messages in PPI advertisements (including the price of their PPI, expressed in a common format of monthly cost per £100 of monthly benefit required, and that PPI is optional and available from other providers).

• A requirement on distributors to advertise PLPPI (personal loan) and SMPPI (second-charge mortgage) alongside their respective credit advertisements so as to make it clear it is an optional product.

• A requirement on all PPI providers to provide certain information on PPI policies to the FSA and a recommendation to the FSA that it uses this information for its PPI price comparison tables.

• 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 proposed remedies have been published so that interested parties have a further opportunity to comment before the Competition Commission publishes its final report (currently planned for January 2009).
This report will include the decision on the remedy measures to be introduced.

The Competition Commission last month published its separate provisional findings on retail PPI, a small part of the overall PPI market relating to protection taken out on repayments for shopping through home catalogues. The report concludes that, as with other types of PPI policy, retail PPI is highly profitable for distributors and there is little competition between providers on price and other factors, limited ability for customers to search for alternatives or switch products and a considerable point-of-sale advantage for the providers. Visit Personal Accident for more independent information on the cheapest loan payment protection insurance available

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