Education or regulation

We're all familiar with the payment protection insurance (PPI) debacle – damning reports from the Citizens Advice Bureau, Office of Fair Trading, FSA and Defaqto. And the deadline of 17 March for trade associations to give evidence to the FSA on how they're tackling anti-competitive practices highlights what we already know – the sales process is flawed and consumers are not making informed decisions when they purchase.

At its follow-up meeting with trade associations on 6 April, the FSA observed that responses focused almost entirely on compliance rather than wider competition issues and, within compliance, there was an emphasis on consumer information, rather than the sales process itself.

This is where we all seem to be missing a trick. Much emphasis is placed on the product, such as delinking the policy from the main sale, abolishing single premiums and providing greater information to consumers, which is to be applauded, but what about the sales process?

As a non-advised general insurance product, those selling PPI need only meet the FSA's training and competence requirements.

FSA spokesman Robin Gordon-Walker says: “The training and competence rulebook adopts a principle-based approach. Firms need to ensure that sales staff, particularly in public and handling financial services, should be competent and trained to the sufficient standard to do the job properly.”

But how do providers demonstrate that they have reached a ‘sufficient standard'.
While there are a number of qualifications that help to do this, such as Biba's BrokerAssess training tool and the CII's Foundation Insurance Test, Certificate, Diploma or Advanced Diploma, there's nothing mandatory.

The FSA isn't pushing for the introduction of mandatory qualifications and, if there's no cross-industry guidance in place, PPI providers will educate and train as they see fit. How much attention do those who put quantity over quality give to competency and skills?

If a robust, nationally-recognised cross-industry education and training system was in place, people would not be mis-sold these products, consumers would be better informed and our industry's reputation would not be in tatters.

A recent survey undertaken by independent financial website, Moneyfacts, clearly underlines that although our industry and the trade bodies profess to be making great progress, they're having a negligible impact on consumers.

In March this year, Moneyfacts revealed that 53% of consumers believed banks were too pushy when trying to sell insurance with a loan or credit card. An earlier poll showed that of consumers who took out loan protection, only 41% actually knew what they were covered for.

Doesn't this confirm that cover is sold for the benefit of the provider, rather than the consumer's peace of mind? There were also instances of ‘doubling up' – where PPI policies with life cover, were sold to those who already had it.

The FSA believes that the poor reputation of the industry is not because of a lack of training or competency/skills, but is more to do with a firm's approach to sales.
Gordon-Walker continues: “Sales staff could pass exams in this area, but it may not make them more competent if they have unrealistic sales targets to meet.”

I beg to differ, the introduction of formal qualifications coupled with reviews of competency and skills, will drive up standards. It's widely recognised that those giving mortgage and investment advice need qualifications that are validated and approved by the Financial Services Skills Council (FSSC), so why can't we do the same for PPI?
The FSSC could help to implement a baseline standard qualification and to ensure take-up, and the FSA could incorporate it as a compliance requirement.

But will this ev ders do not have the appetite to change their sales process, there is doubt they would put their staff through a cross-industry training programme. Richard Fox at the CII believes that lenders do not perceive there is a problem, so why would they want to change anything?

He says: “If it's not mandatory, people are less inclined to want to demonstrate competency. We have enough trouble getting people to take up the mortgage section within our own training and assessment model.”

Fox concedes that the industry needs help in benchmarking and boosting its knowledge and confidence in this product: “We're not punching our weight. It's frustrating that consumers do not shop around, they would get a far better product offering from a broker.”

If the FSA and FSSC will not add PPI to the list of required financial services qualifications and lenders are not keen to sign up to a formal education and training programme, then brokers will have to work harder to win back the consumer.

Point-of-sale materia
Is more education needed at a consumer level, rather than at the sales process? Yes, says Malcolm Tarling at the ABI. “Following the recent investigations, we are working hard to improve the point of sale practices. Consumers should be better empowered and informed about the product and to do this we're working with the British Bankers Association to produce point of sale material. It's important that distributors and suppliers work together.”

I agree with him, but let's not detract from the key issue – greater training, education, clarity and collaboration are needed.

I believe, as does the Council of Mortgage Lenders, that lending institutions need to work with trade bodies, insurers and intermediaries to raise standards.

Practical solutions such as better policy summaries and key features documents, guidance on how to communicate those features, cross-industry leaflets for consumers, clearer price information, improved staff training and the development of a standard training manual are all necessary.

Essentially, this leads back to the regulator. The FSA is keen to move the PPI debate on. It is looking for better compliance with its rules, firms are being referred to enforcement and a second thematic review is underway. The market structure is under closer scrutiny and I hear remedies could include ‘advised sales' and better disclosure.
Looking to the future, will this mean that PPI providers will have to pass a formal qualification? I sincerely hope so. It's wrong to put the onus on the consumer.
If the FSA really wants providers to Treat Customers Fairly, it needs to set the wheels in motion to ensure all PPI providers have the tools to do this. IT

‘ Simon Burgess is managing director of britishinsurance.com