Dissatisfaction with payment protection policies triples after rife misselling

Insurance disputes shot up by 84% during the past year, with complaints about payment protection policies (PPI) tripling, according to the Financial Ombudsman Service (FOS).

The FOS annual review revealed that insurance disputes involving adjudicators and ombudsmen increased from 27,364 to 50,351 between April 2008 and March 2009, of which 62.2% were PPI cases.

Clever marketing techniques employed by claims farmers helped complaints from PPI cases increase from 10,652 to 31,066, said the FOS.

The ombudsman had also heard from customers complaining they were strong-armed into buying PPI and others saying they were unaware they had even purchased insurance policies. FOS investigators listened to telesales conversations, combed through staff training manuals and examined contracts, while probing the complaints. About 89% of complaints against PPI ended up in favour of the consumer. The FOS will usually demand the premium is paid back to the customer.

The FOS said: “We upheld a very high proportion of those cases. So it is clear the wider system is not working as it should.

“We have worked closely over the year with the FSA, trade associations and major businesses, to ensure that our approach is well understood across the sector. At its simplest, we decide most complaints about the sale of PPI on the basis of whether the seller recommended a policy that they should have known was unsuitable for their customer – or whether they provided the information that the customer needed, to be able to decide whether to buy the policy.”

The Competition Commission’s ban in February of single-premium PPI – in which a loan is taken out to cover the premium – and banning point-of-sale practices should help reduce future disputes, it says.

“This should mean that the potential for disputes to arise about future sales of these policies will diminish.

“However, significant concerns remain about widespread misselling of these policies in the past – which may lead to substantial numbers of complaints in the future,” says the report.

Meanwhile, the report says buildings and contents disputes increased by 27% and puts the blame on cost-cutting and redundancies at insurance companies, together with customers fighting for every penny in the recession.

An Association of British Insurers spokesman said they had been working to improve PPI literature and educate customers about the product.

He said: “We have always said that we recognise improvements need to be made in the way the product is designed, marketed and sold.

“What we have also said is don’t throw the baby out with the bathwater. Customers must have appropriate protection for any loan they take out.”