The Competition Commission report on payment protection insurance (PPI) is a huge opportunity for pr...
The Competition Commission report on payment protection insurance (PPI) is a huge opportunity for protection insurers and advisers. Combined with the implementation of the Thoresen Review and Money Guidance, it will mean better products at reduced prices being made available to large numbers of consumers. The losers will be the small number of large distributors that are sitting on gross written premiums of £3.5bn and profits of £1.4bn (2006 figures).
PPI is sold by distributors at the point of sale of credit or mortgage; giving them an inherent advantage over their competition. Yet, the scales are even more heavily weighted in their favour by consumers assuming they cannot have credit without buying the seller's PPI; single-premium policies that bind customers for the duration of the loan, adding to consumer detriment by charging interest on the premium itself; PPI being sold mainly to those without access to financial advice who buy cover for peace of mind even though these policies do not cover pre-existing medical conditions and being much higher priced than similar stand-alone policies.
Switching products is prevented by consumer ignorance about what is available elsewhere and at what price, as well as the difficulty of obtaining accurate comparison when doing so requires another 'credit footprint'.
These are all comments culled from the report, a rigorous and balanced analysis of the market at the time. True, some improvements may have been made but obviously not enough - otherwise the recommendations proposed in the report would not attract such ire. I fail to see what is wrong with the disclosure of other product and cost detail or in standardising information so consumers can make comparisons.
If this new world comes about then there will be better PPI policies and great potential for insurers and IFAs outside the 'magic credit circle' to advise and sell protection products related to consumer needs.
The Competition Commission has said that if it does not find consumer benefits that outweigh the adverse effects on competition then it will impose remedies. In other words, the vested interests of one bloated part of the distribution market losing its stranglehold over consumers will not add up to a hill of beans (we can hope).
- Richard Walsh is managing director of SPPR Consulting.
